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 company's 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 Year Actual Expenditures Date Jan. 1 Mar. 31 June 30 Nov. 30 $102,000 3,060,000 6,120,000 3,060,000 Outstanding Debt in Current Year Debt Note payable Note payable Bond payable Note payable Debt Amount Interest Rate $3,400,000 8% 2,720,000 8% 6,800,000 10% 1,700,000 9% Compute Interest to Capitalize and Expense Journal Entry in Year 1 Journal Entries in Year 2
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 company's 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 Year Actual Expenditures Date Jan. 1 Mar. 31 June 30 Nov. 30 $102,000 3,060,000 6,120,000 3,060,000 Outstanding Debt in Current Year Debt Note payable Note payable Bond payable Note payable Debt Amount Interest Rate $3,400,000 8% 2,720,000 8% 6,800,000 10% 1,700,000 9% Compute Interest to Capitalize and Expense Journal Entry in Year 1 Journal Entries in Year 2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![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 company's 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 Year
Date
Actual Expenditures
Jan. 1
Mar. 31
June 30
Nov. 30
Outstanding Debt in Current Year
Debt
Note payable
Note payable
Bond payable
Note payable
$102,000
3,060,000
6,120,000
3,060,000
Debt Amount Interest Rate
$3,400,000
8%
2,720,000
8%
10%
9%
6,800,000
1,700,000
Check
Compute Interest to Capitalize and Expense Journal Entry in Year 1
Journal Entries in Year 2
b. Prepare the summary entry to record the construction expenditures and interest for the year. Assume all payments are in cash.
Account Name
Dr.
Cr.
Land
Construction in Process
Interest Expense
Cash
To record construction expenditures and interest.
102,000
12,240,000
805,664
0
0
0
0
G](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0e87e191-273b-4430-9665-0115d53e354e%2F69b87aae-34b6-48db-9c02-24fa4a3ec27e%2Fksp7sgp_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 company's 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 Year
Date
Actual Expenditures
Jan. 1
Mar. 31
June 30
Nov. 30
Outstanding Debt in Current Year
Debt
Note payable
Note payable
Bond payable
Note payable
$102,000
3,060,000
6,120,000
3,060,000
Debt Amount Interest Rate
$3,400,000
8%
2,720,000
8%
10%
9%
6,800,000
1,700,000
Check
Compute Interest to Capitalize and Expense Journal Entry in Year 1
Journal Entries in Year 2
b. Prepare the summary entry to record the construction expenditures and interest for the year. Assume all payments are in cash.
Account Name
Dr.
Cr.
Land
Construction in Process
Interest Expense
Cash
To record construction expenditures and interest.
102,000
12,240,000
805,664
0
0
0
0
G
![Mar. 31
June 30
Nov. 30
Outstanding Debt in Current Year
3,060,000
6,120,000
3,060,000
Debt
Debt Amount Interest Rate
Note payable
$3,400,000
8%
Note payable
2,720,000
8%
Bond payable
6,800,000
10%
Note payable 1,700,000
9%
Compute Interest to Capitalize and Expense
Journal Entry in Year 1
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.
To record cost transfer
Account Name
Check
Account Name
To record annual depreciation
Dr.
Journal Entries in Year 2
Dr.
0
0
0
Cr.
Cr.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0e87e191-273b-4430-9665-0115d53e354e%2F69b87aae-34b6-48db-9c02-24fa4a3ec27e%2F7gs9llt_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Mar. 31
June 30
Nov. 30
Outstanding Debt in Current Year
3,060,000
6,120,000
3,060,000
Debt
Debt Amount Interest Rate
Note payable
$3,400,000
8%
Note payable
2,720,000
8%
Bond payable
6,800,000
10%
Note payable 1,700,000
9%
Compute Interest to Capitalize and Expense
Journal Entry in Year 1
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.
To record cost transfer
Account Name
Check
Account Name
To record annual depreciation
Dr.
Journal Entries in Year 2
Dr.
0
0
0
Cr.
Cr.
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