Computing and Recording Interest Capitalization

The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January 2021. The construction project is for a building intended for the companys own use. The capital expenditure on January 1, 2020, is for the purchase of land for the building site. No new construction loans were opened for the project in 2020. All debt was outstanding for the full year.

Capital Expenditures for 2020

Date	Amount
Jan. 1, 2020	$ 24,000
Mar. 31, 2020	720,000
June 30, 2020	1,440,000
Nov. 30, 2020	720,000

Outstanding Debt in 2020

Debt	Debt Amount	Interest Rate
Note payable	$800,000	8%
Note payable	640,000	8%
Bond payable	1,600,000	10%
Note payable	400,000	9%

Answer the following questions: a. Compute interest to be capitalized and the interest to be expensed in 2020. b. Prepare the entry to record the construction expenditures and interest for 2020. c. Prepare the entry for depreciation in 2021 assuming that the project is completed on January 1, 2021. Assume that the building has a useful life of 30 years, and that the company uses the straight-line depreciation method.

Note: Do not round until your final answers, then round to nearest whole number.

a.

Amount of interest to be capitalized	Answer
Amount of interest to expense	Answer

b.

Account Name	Dr.	Cr.
Land	Answer	Answer
Construction in Process	Answer	Answer
AnswerCashPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note PayableCommon StockPaid-in Capital in Excess of ParCommon StockContribution RevenueGain on Asset ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement of Asset Retirement ObligationN/A	Answer	Answer
Cash and Payables	Answer	Answer

c.

Account Name	Dr.	Cr.
	Answer	Answer
	Answer	Answer