On December 31, 2006, Alma-Ata Inc. borrowed $3,000,000 at 12% payable annually to finance

the construction of a new building. In 2007, the company made the following expenditures

related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1,

$1,500,000. Additional information is provided as follows.

1.

Other debt outstanding

10-year, 13% bond, December 31, 2000, interest payable annually

$4,000,000

6-year, 10% note, dated December 31, 2004, interest payable annually

$1,600,000

2.

March 1, 2007, expenditure included land costs of $150,000

3.

Interest revenue earned in 2007

$49,000

Instructions

(a)

Determine the amount of interest to be capitalized in 2007 in relation to the construction of

the building.

(Note: Do not round the computation for the capitalization period.)

$ 183000

(b)

Prepare the journal entry to record the capitalization of interest and the recognition of interest

expense, if any, at December 31, 2007.

(For multiple debit/credit entries, list in order of

magnitude.)