Question

On December 31, 2019, Ayayai Inc. borrowed $4,320,000 at 13% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $518,400; June 1, $864,000; July 1, $2,160,000; December 1, $2,160,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10-year, 14% bond, December 31, 2013, interest payable annually $5,760,000 6-year, 11% note, dated December 31, 2017, interest payable annually $2,304,000 2. March 1, 2020, expenditure included land costs of $216,000 3. Interest revenue earned in 2020 $70,560

Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building. The amount of interest $ SHOW LIST OF ACCOUNTS

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit December 31, 2020 Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer
Date	Amount	Time	Weighted Average expenditure
Mar-01	$       5,18,400	10-Dec	$              4,32,000
Jun-01	$       8,64,000	07-Dec	$              5,04,000
Jul-01	$     21,60,000	06-Dec	$            10,80,000
Dec-01	$     21,60,000	01-Dec	$              1,80,000
			$            21,96,000
Amount of interest =$21,96,000*13%=			$              2,85,480
Actual Interest Paid
$     43,20,000	13%	$        5,61,600
$     57,60,000	14%	$        8,06,400
$     23,04,000	11%	$        2,53,440
		$      16,21,440
Journal Entry
Date	Particulars	Debit	Credit
31-12-2020	Building	$        2,85,480
	Int. Exp.	$      13,35,960
	To, Cash		$            16,21,440
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