Question

Computing and Recording Interest Capitalization

Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January 1, $30,000; July 1, $290,000; September 1, $800,000; and December 31, $2,110,000. The following debts were outstanding throughout the current year.

Debt		Amount
Construction note, 12%		$100,000
Short-term note payable, 15%		400,000
Accounts payable (noninterest-bearing)		400,000

Answer the following questions, rounding your answers to the nearest whole dollar.

a. Compute the amount of interest to be capitalized in 2020.
$Answer

b. Calculate the amount of interest to expense in 2020.
$Answer

c. Prepare the 2020 summary journal entry to record the construction expenditures and interest, assuming that construction is not complete on December 21, 2020.
Note: Record debit accounts in alphabetical order using the first letter of the account name.

Account Name	Dr.	Cr.
Cash and PayablesPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note PayableCommon StockPaid-in Capital in Excess of Par—Common StockContribution RevenueGain on Asset ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement of Asset Retirement ObligationN/A
Cash and PayablesPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated          DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note          PayableCommon StockPaid-in Capital in Excess of Par—Common StockContribution RevenueGain on Asset          ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on          Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement          of Asset Retirement ObligationN/A
Cash and PayablesPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note PayableCommon StockPaid-in Capital in Excess of Par—Common StockContribution RevenueGain on Asset ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement of Asset Retirement ObligationN/A

Answer 1

GIVEN THAT :-

According to the question we have that ,

expenditures are made during the current year:

January 1, $30,000;

July 1, $290,000;

September 1, $800,000;

December 31, $2,110,000.

Debt		Amount
Construction note, 12%		$100,000
Short-term note payable, 15%		400,000
Accounts payable (noninterest-bearing)		400,000

now calculating the total expenses

cost of plant = 30000+290000+800000+2110000=3230000

amount of intrest to be capitalized = 72000

total = $3302000

TO FIND :- a). Compute the amount of interest to be capitalized in 2020.

amount of intrest capitalized in 2020 is $ 72000

TO FIND :-b). Calculate the amount of interest to expense in 2020.

amount of intrest expense in 2020= 0

TO FIND :-c)Prepare the 2020 summary journal entry to record the construction expenditures and interest, assuming that construction is not complete on December 21, 2020.

summary journal entry

plant a/c $3302000

to bank a/c $3302000

working:-

computation of average accumualted expenses

1 january :-

$30000*12/12 = $30000

1july-

$290000*6/12=$145000

1september :-

$800000*4/12= $266667

31 december:-

2110000*0/12=0

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