Computing and Recording Interest Capitalization

The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January of next year. The construction project is for a building intended for the companys own use. The capital expenditure on January 1 of the current year is for the purchase of land for the building site. No new construction loans were opened for the project during the year. All debt was outstanding for the full year.

Capital Expenditures for Current YearDateActual ExpendituresJan. 1$54,000Mar. 311,620,000June 303,240,000Nov. 301,620,000

Outstanding Debt in Current YearDebtDebt AmountInterest RateNote payable$1,800,0008%Note payable1,440,0008%Bond payable3,600,00010%Note payable900,0009%

• Compute Interest to Capitalize and Expense
• Journal Entry in Year 1
• Journal Entries in Year 2

a. Compute (1) interest to be capitalized and (2) interest to be expensed, during the year.

Calculation of Actual InterestDebtDebt AmountInterest rateInterest AmountSpecific DebtConstruction loanAnswerAnswerAnswerGeneral DebtNote payableAnswerAnswerAnswerNote payableAnswerAnswerAnswerBond payableAnswerAnswerAnswerNote payableAnswerAnswerAnswerTotal

Calculation of Weighted Average Accumulated ExpendituresDateExpendituresMonths OutstandingWA Accum. ExpendituresJanuary 1AnswerAnswerAnswerMarch 31AnswerAnswerAnswerJune 30AnswerAnswerAnswerNovember 30AnswerAnswerAnswerTotal

Calculation of annual interest rate used in the schedule that followsNumeratorDenominator=Interest RateGeneral DebtAnswerAnswer=

Calculation of Avoidable InterestWeighted AverageAccumulatedInterestAvoidableDebt CategoryExpendituresRateInterestSpecific DebtAnswerAnswerAnswerGeneral DebtAnswerTotalAnswerAnswer

1. Capitalized InterestAnswer2. Interest expense