Question
On October 1, 2017, Green Energy Inc. contracted Wind Turbine Solutions to install wind turbines for $1,000,000. Green Energy Inc. made payments for the installation
On October 1, 2017, Green Energy Inc. contracted Wind Turbine Solutions to install wind turbines for $1,000,000. Green Energy Inc. made payments for the installation as follows: November 1, $300,000, January 1, $400,000, April 1, $300,000. The installation was completed, and the turbines were operational on April 30, 2018. Green Energy Inc. had the following outstanding debt as of December 31, 2018:
i) 12% three-year note to finance the installation, dated October 1, 2017, with interest payable annually on December 31. Principal amount: $600,000. ii) 8% five-year note payable, dated October 1, 2016, with interest payable annually on December 31. Principal amount: $400,000.
Required: i) Determine the amount of interest to be capitalized in 2018 in relation to the wind turbine installation. (6 marks) ii) Prepare journal entries for Green Energy Inc. during 2018.
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