Question
On June 1, 2024, Tech Innovations Ltd. contracted Construction Masters to build a new research and development facility for $2,000,000. Tech Innovations Ltd. made payments
On June 1, 2024, Tech Innovations Ltd. contracted Construction Masters to build a new research and development facility for $2,000,000. Tech Innovations Ltd. made payments for the construction as follows: July 1, $500,000, September 1, $800,000, December 1, $700,000. The construction was completed, and the facility was ready for use on December 31, 2025. Tech Innovations Ltd. had the following outstanding debt as of December 31, 2025:
i) 12% two-year note to finance the construction, dated June 1, 2024, with interest payable annually on December 31. Principal amount: $1,000,000. ii) 8% five-year note payable, dated June 1, 2021, with interest payable annually on December 31. Principal amount: $1,000,000.
Required: i) Determine the amount of interest to be capitalized in 2025 in relation to the construction of the research and development facility. (6 marks) ii) Prepare journal entries for Tech Innovations Ltd. during 2025.
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