On July 31, 2022, Bismarck Company engaged Duval Tooling Company to construct a special-purpose piece of factory machinery. Construction began immediately and was completed on November 1, 2022. To help finance construction, on July 31 Bismarck issued a $400,000, 3-year, 12% note payable at Wellington National Bank, on which interest is payable each July 31. On July 31, $300,000 of the proceeds of the note was paid to Duval. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Bismarck made a final $100,000 payment to Duval.

Instructions

a. Calculate the interest expense, interest revenue, and total borrowing cost to be capitalized during 2022. (Round all computations to the nearest dollar.)

b. Prepare the journal entries needed on the books of Bismarck Company at each of the following dates.

1. July 31, 2022.

2. November 1, 2022.

3. December 31, 2022.