Determine the amount of interest to be capitalized

Reference no: EM13259711

On Dec. 31, 2006, Alma-Ata, Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2007, the company made the following expenditures related to the building: March 1 $360,000; June 1 $600,000; July 1 $1,500,000, December 1 $1,500,000. Additional info is provided as follows:

1. Other debt outstanding:

a.) 10-yr, 13% bond, Dec 31, 2000, interest payable annually - $4,000,000

b.) 6-yr, 10% note, dated Dec 31, 2004, interest payable annually - $1,600,000

2. March 1, 2007, expenditure included land costs of $150,000

3. Interest revenue earned in 2007 - $49,000

Instructions:

1. Determine the amount of interest to be capitalized in 2007 in relation to the construction of the building.

2. Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if an, at Dec. 31, 2007.

Reference no: EM13259711

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