Exercise 10-8

On December 31, 2016, Splish Inc. borrowed $3,780,000at13% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1, $453,600; June 1, $756,000; July 1, $1,890,000; December 1, $1,890,000. The building was completed in February 2018. Additional information is provided as follows.

1.Other debt outstanding

10-year,14% bond, December 31, 2010, interest payable annually$5,040,0006-year,11% note, dated December 31, 2014, interest payable annually$2,016,000

2.March 1, 2017, expenditure included land costs of $189,000

3.Interest revenue earned in 2017$61,740

Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building.

The amount of interest $______________________

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2017.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)