Reference no: EM132524896
Question - On December 31, 2020, Dunc Surf., a public company, borrowed $3 million at 12% payable annually to finance the construction of a new building. In 2021, the company made the following expenditures related to this building structure (unless otherwise noted): March 1, $507,000; June 1, $618,000; July 1, $1.5 million (of which $415,000 was for the roof); December 1, $1.5 million (of which $720,000 was for the building HVAC).
Additional information follows:
1. Other debt outstanding: $4-million, 10-year, 12% bond, dated December 31, 2013, with interest payable annually $1.7-million, six-year, 9% note, dated December 31, 2017, with interest payable annually.
2. The March 1, 2021 expenditure included land costs of $141,000.
3. Interest revenue earned in 2021 on the unused idle construction loan amounted to $50,500.
Required -
1. Determine the interest amount that could be capitalized in 2021 in relation to the building construction.
2. Prepare the journal entry to record the capitalization of borrowing costs and the recognition of interest expense, if any, at December 31, 2020.
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