Question

During 2019, Brent Industries, Inc. constructed a new manufacturing facility at a cost of $12,000,000. The weighted average accumulated expenditures for 2019 were calculated to be $5,750,000. The company had the following debt outstanding at December 31, 2019:

(a) 7 percent, five-year note to finance construction of the manufacturing facility, dated January 1, 2019, $4,000,000.

(b) 9 percent, 20-year bonds issued at par on April 30, 2015, $8,400,000.

(c) 7 percent, six-year note payable, dated March 1, 2017, $1,800,000.

Required:

1. Determine the amount of interest that should be capitalized in 2019 assuming that the facility is completed at the end of 2019. DON'T NEED

2. Show the most likely journal entry to record the capitalized interest assuming that Brent recorded all interest as expense when paid or accrued. DON'T NEED

3. Give the journal entry to record depreciation on the facility in 2020 assuming a 25 year useful life and no salvage value.

4. Give the journal entry to sell the manufacturing facility at the end of 2030 for $7 million in cash.

I have the answers to 1&2 - I just need 3&4 please. Thanks!

Answer 1

Part 3	Depreciation For the year 2020
		Debit	Credit
	Depreciation A/c	497,255
	To Accumulated Depreciation A/c		497,255
	(Being Dep Charged)
	(Refer workings for amount calculation)

Workings for part 3

Weighted avg of non specific borrowings
	Laon Amount	Interest
9% Bonds	8,400,000	756,000
7% Notes Payables	1,800,000	126,000
	10,200,000	882,000
Interest rate	8.65

Interest to be capitalise	Interest
Sepcific Borrowings	280,000
(40,00,000*7%)
Non Specific borrowings	151,375
(5750000-4000000)*8.65%
Amount to be capitALISE	431,375

Total Capitalisaiton value of Facility
Manufacturing Cost	12,000,000
Interest Cost to be capitalise	431,375
Total Capitalise Cost	12,431,375
Useful Life	25
Depreciation for Year	497,255

Part 4
	Accumulated Depreciation for 11 yrs	5,469,805
	(497255*11)
	Cost of Facility	12,431,375
	Book Value as on 31 dec,2030	6,961,570
	Sale Value	7,000,000
	Gain on Sale	38,430

Journal Entry on Sale	Debit	Credit
Cash	7,000,000
Accumulated Depreciation	5,469,805
To Facility-Manufacturing		12,431,375
To Gain on Sale of Facility		38,430
(being sale of facility)