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Prepare the journal entry to record interest capitalization

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Reference no: EM131587196

Question: In 2016 Amara paid the following to build its new factory:

5/1$240,000

9/1$780,000

12/1$480,000

Amara borrowed $250,000 at 9% on 1/1 for the construction. Other loans that existed were:

$120,000 at 14%

$ 400,000 at 11%

Required:

a. Compute the total interest due for 2016.

b. What is the amount of interest that should be capitalized by Amara for 2016? (round interest rate to 2 decimals)

c. Prepare the journal entry to record the interest capitalization.

d. Assume management recorded all capital expenditures during the year in the CIP (construction in process) account, prepare the journal entry to place the building on the books.

e. Assume that the new building was placed into service on April 1st 2017, prepare the depreciation entry for December 31, 2018, assuming the company uses double declining method, the building has an estimate life of 40 years, and a salvage value of $50,000.

Reference no: EM131587196

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