Question
On May 1, 2020 a company started constructing a manufacturing facility which was completed on March 31, 2021. You have the following information about the
On May 1, 2020 a company started constructing a manufacturing facility which was completed on March 31, 2021. You have the following information about the direct costs incurred on the construction project in 2020:
May 1 3,100,000
July 31 4,600,000
October 30 4,200,000
December 1 150,000
All the costs have been debited to the Construction in Progress account. The company took a loan for the project of $3,000,000 on June 1, 2020. The annual interest rate is 4%.
The companys borrowings include:
Bank loan, 6% issued March 1, 2020 $8,800,000
Note payable 4% issued September 30, 2019 $2,500,000
The total cost of the manufacturing facility should be recorded in the long-term asset account, Manufacturing Facility under construction.
Prepare the necessary adjusting entries at December 31, 2020 to record the asset and the capitalization of borrowing costs.
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