Your audit client, PEW Company, followed up on its plan to expand its operations in 2018. The entity's plan was to start the

construction of its new building beginning of March and start its operations in the new site beginning of November.

PEW, however, projected at the beginning of the year that its funds will not be enough to start the construction come March.

So, on January 1, 2018, the entity obtained a loan from Bank of PI for P50 million, specifically to fund the construction. The loan

is due December 31, 2020, and the entity will be paying 12% interest every December 31.

Since the construction will not commence until beginning of March, and the construction will not require a one-time outflow of

cash, the entity decided to invest the unused proceeds in an investment facility that yields 0.5% return monthly. The unused

proceeds will be invested at the beginning of each month. The first investment was made on January 1, 2018.

Construction started on March 1, 2018 and ended on October 31, 2018. The schedule of payments made during the construction

is as follows:

Date Amount

March 1 5,000,000

April 30 8,600,000

July 1 10,000,000

August 1 7,400,000

September 30 2,000,000

October 31 15,000,000

The entity started using the building on November 2 and estimated that the building will have an estimated useful life of 20 years

with no residual value. The building was capitalized for P48 million, equal to the actual payments made during the construction

period. Interest paid for the loan was recorded as interest expense, and all returns from the investment facility were recorded as

income. The entity provided a depreciation of P400,000 for 2018 using the straight-line method.

Based on the above and the result of your audit, answer the following:

1. Prepare the adjusting journal entry "in relation to the interest paid for the loan" in order to reflect the correct treatment of

capitalizable interest, assuming the nominal accounts are still open (do not use Income Summary account).