Exercise 10-8 On December 31, 2016, Bridgeport Inc. borrowed $4,020,000 at 13% p
ID: 2580802 • Letter: E
Question
Exercise 10-8
On December 31, 2016, Bridgeport Inc. borrowed $4,020,000 at 13% payable annually to finance the construction of a new building. In 2017, the company made the following expenditures related to this building: March 1, $482,400; June 1, $804,000; July 1, $2,010,000; December 1, $2,010,000. The building was completed in February 2018. Additional information is provided as follows.
Determine the amount of interest to be capitalized in 2017 in relation to the construction of the building.
Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2017. (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
1. Other debt outstanding 10-year, 14% bond, December 31, 2010, interest payable annually $5,360,000 6-year, 11% note, dated December 31, 2014, interest payable annually $2,144,000 2. March 1, 2017, expenditure included land costs of $201,000 3. Interest revenue earned in 2017 $65,660Explanation / Answer
WEIghted average expenditure : [482400*10/12]+[804000*7/12]+[2010000*6/12]+[2010000*1/12]
= 402000+ 469000+ 1005000+ 167500
= 2043500
Interest expense :
a)Amount to capitalize =Weighted average investment *Interest rate on construction loan
= 2043500 * .13
= $ 265655
b)
***Land expenditure incurred during construction is to be added to or consider part of cost of building
Interest on construction loan [4020000*.13] 522600 Interest on other loan 10-year, 14% bond, December 31, 2010, interest payable annually [5360000*.14] 750400 6-year, 11% note, dated December 31, 2014, interest payable annually [2144000*.11] 235840 Total interest expense 1508840Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.