Question
Stephenson Inc. began to construct a building for its use on January 1, 2018. All costs associated with the construction are being debited to an
Stephenson Inc. began to construct a building for its use on January 1, 2018. All costs associated with the construction are being debited to an account called Construction-in-Progress. The construction will take approximately 24 months. Weighted-average expenditures for 2018 have already been determined to be $1,800,000.
The company has one specific as well as two non-specific loan borrowings. Details are as follows:
Specific Loan Borrowing: $1,000,000 loan at 12% taken out 1/1/2018 and due in 2019.
Non-specific Borrowings:
Note #1: $500,000 at 9%. This loan was outstanding for all of 2018 and is due in 2019.
Note #2: $700,000 at 12%. This loan was outstanding for all of 2018 and is due in 2020.
Part A: What portion of the interest on the above loans should be capitalized in 2018? Important: Round interest rates to two decimal places (ex. .114321 = 11.43%)
Answer: $__________
Part B: If the company has already accrued and paid the 2018 interest costs on these three loans by debiting Interest Expense and crediting Cash, what should be the adjusting journal entry it makes on 12/31/18 to capitalize the interest amount calculated in Part A?
|
| Debit | Credit |
12/31/18 |
|
|
|
|
|
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started