Problem #$2-$ Interest Capitalization $(25$ Points$)$

On November $1,2006-$ Shalla Company contracted Pfeifer Construction Company to

construct a building for $$5,600,000$ on land costing $$400,000($purchased from the contractor

and included in the first payment.$)$

Shalla made the following payments to the construction company during $2007$:

January $1,2007=$$$840,000$

February $1,2007=$$$1,200,000$

June $1,2007=$$$2,160,000$

December $31,2007=$$$1,800,000$

Total $=$$$6,000,000$$$3,000,000$ year note to finance purchase of land and construction

of the building, dated December $31,2006,$ with interest payable annually on

December $31^($st $).$

Other Debt

$($$$2,200,000)-10\%,5$ year note payable dated December $31,2003,$ with

interest payable annually on December $31^($st $).$

$($$$2,400,000)-12\%,10$ year bonds issued December $31,2002$ with interest

payable annually on December $31^($st $).$

REQUIRED:

Calculate Avoidable & Actual Interest

Prepare complete adjusting journal entry for $(12)/(31)()/(07)$ to record Capitalized

Interest. I don't want all iournal entries for all payments made $-$ only the complete

entry that shows capitalized interest.

Journal Entry