Computing and Recording Interest Capitalization

The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January of next year. The construction project is for a building intended for the companys own use. The capital expenditure on January 1 of the current year is for the purchase of land for the building site. No new construction loans were opened for the project during the year. All debt was outstanding for the full year.

Capital Expenditures for Current YearDateActual ExpendituresJan. 1$54,000Mar. 311,620,000June 303,240,000Nov. 301,620,000

Outstanding Debt in Current YearDebtDebt AmountInterest RateNote payable$1,800,0008%Note payable1,440,0008%Bond payable3,600,00010%Note payable900,0009%

• Compute Interest to Capitalize and Expense
• Journal Entry in Year 1
• Journal Entries in Year 2

c. Assume that the project is completed on January 1 of the next year. (1) Prepare the entry to transfer costs from construction in process to property and equipment. (2) Prepare the annual entry for depreciation for that next year, assuming that the building has a useful life of 30 years with no salvage value, and that the company uses the straight-line depreciation method.

1.Account NameDr.Cr.AnswerAnswerTo record cost transfer

2.Account NameDr.Cr.AnswerAnswerTo record annual depreciation