Computing and Recording Interest Capitalization

Weld Corporation is constructing a plant for its own use. Weld capitalizes interest on an annual basis. The following expenditures are made during the current year: January $1,$ $$60,000$; July $1,$ $$580,000$; September $1,$ $$1,600,000$; and December $31,$ $$4,220,000.$ The following debts were outstanding throughout the current year.

DebtAmountConstruction note, $12\%$$$200,000$Short$-$term note payable, $15\%800,000$Accounts payable $($noninterest$-$bearing$)800,000$

Note: Round all of your answers to the nearest whole number or whole percentage point.

a$.$ Compute the amount of interest to be capitalized during the year.

Calculation of Actual InterestDebtDebt AmountInterest rateInterest AmountSpecific DebtConstruction loanAnswer $1$

Answer $2$

Answer $3$

General DebtNote payableAnswer $4$

Answer $5$

Answer $6$

Total Actual Interest

Calculation of Weighted Average Accumulated ExpendituresWeighted Avg.DateExpendituresMonths outstandingAccum. ExpendituresJanuary $1$Answer $7$

Answer $8$

Answer $9$

July $1$Answer $10$

Answer $11$

Answer $12$

September $1$Answer $13$

Answer $14$

Answer $15$

December $31$Answer $16$

Answer $17$

Answer $18$

Weighted avg. accum. expenditures

Calculation of Avoidable InterestDebtWeighted Avg.InterestAvoidableCategoryAccum. ExpendituresRateInterestSpecific DebtAnswer $19$

Answer $20$

Answer $21$

General DebtAnswer $22$

Answer $23$

Answer $24$

Answer $25$

Amount of interest to be capitalized during the year: $Answer $26$

b$.$ Calculate the amount of interest expense for the year. $Answer $27$

c$.$ Prepare the summary journal entry for the year to record the construction expenditures and interest, assuming that construction is not complete on December $31.$ Assume all payments are in cash.

Account NameDr.Cr$.$Dec. $31$CashPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note PayableCommon StockPaid$-$in Capital in Excess of Par$$Common StockContribution RevenueGain on Asset ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement of Asset Retirement ObligationProperty and EquipmentN$/$AAnswer $28$

CashPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note PayableCommon StockPaid$-$in Capital in Excess of Par$$Common StockContribution RevenueGain on Asset ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement of Asset Retirement ObligationProperty and EquipmentN$/$AAnswer $29$

CashPrepaid InsuranceEquipmentBuildingLandConstruction in ProcessAccumulated DepreciationAccounts PayableProperty Tax PayableAsset Retirement ObligationNote PayableDiscount on Note PayableCommon StockPaid$-$in Capital in Excess of Par$$Common StockContribution RevenueGain on Asset ExchangeAccretion ExpenseDepreciation ExpenseInsurance ExpenseInterest ExpenseRepair ExpenseLoss on Asset ExchangeLoss on Asset ReplacementLoss on Construction of BuildingLoss on DisposalLoss on Settlement of Asset Retirement ObligationProperty and EquipmentN$/$AAnswer $30$

To record construction expenditures and interest.