Chapter 11, Problem 11.7E

Capitalization of Interest, Specific and General Debt, Journal Entries, IFRS. How would the solution to E11-6 change if Rolling Blackout Power Company was an IFRS reporter and earned $11,000 interest income on investing the excess funds from the construction loan during the year? Prepare the journal entry to record the cash interest payments for the current year.

E11-6. Capitalization of Interest, Specific and General Debt, Journal Entries. Rolling Blackout Power Company constructed a new power plant to supply energy to the Northeast Electrical Grid. The construction began on January 2 and ended on December 31 of the current year. On the date of completion, the plant had a total cost of $8,500,000. The weighted-average accumulated expenditures for the year were $4,250,000.

The company had the following debt outstanding for the entire year.

Debt Instrument and Purpose	Amount
8% note payable: Used to finance the power plant construction project	$2,000,000
12% bond payable: Used to finance maintenance of local transmitters	$1,800,000
13% note payable: Used to finance construction of corporate headquarters	$4,200,000

Required

1. a. Compute the amount of interest to be capitalized for the current year.
2. b. Compute the amount of interest to be expensed in the current year.
3. c. Prepare the journal entry to record the cash interest payments for the current year. Assume that all interest is paid at the end of the year and any interest capitalized is debited to the construction in progress account.