On May 1, 2020 a company started constructing a manufacturing facility which was completed on March 31, 2021. You have the following information about the direct costs incurred on the construction project in 2020:

May 1 July 31 October 30 December 1

3,100,000 4,600,000 4,200,000 150,000

All the costs have been debited to the Construction in Progress account. The company took a loan for the project of $3,000,000 on June 1, 2020. The annual interest rate is 4%.

The company’s borrowings include:
Bank loan, 6% issued March 1, 2020, $8,800,000 Note payable 4% issued September 30, 2019, $2,500,000

The total cost of the manufacturing facility should be recorded in the long-term asset account, ‘Manufacturing Facility under construction.”

Required

Prepare the necessary adjusting entries at December 31, 2020 to record the asset and the capitalization of borrowing costs.

Answer rating: 100% (QA)

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