Problem #1 (Capitalization of Interest)

On December 31, 2016, Jumble Inc. borrowed $1,000,000 at 10% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: June 1, $400,000; July 1, $600,000; September 1, $1,200,000; December 1, $600,000. The building was completed in April 2018. Additional information is provided as follows.

1. Other debt outstanding 10-year, 8% bond, dated December 31, 2010, interest payable annually $10,000,000 15-year, 10% note, dated December 31, 2004, interest payable annually $2,500,000

2. Interest revenue earned in 2017 $6,000 Instructions

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

(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2017.