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(solution) Capitalization of Interest


(Capitalization of Interest) On December 31, 2009, Hurston Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2010, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,200,000. Additional information is provided as follows. 1. Other debt outstanding 10-year, 11% bond, December 31, 2003, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2007, interest payable annually $1,600,000 2. March 1, 2010, expenditure included land costs of $150,000 3. Interest revenue earned in 2010 $49,000 Instructions (a) Determine the amount of interest to be capitalized in 2010 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, 2010.

 


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