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Prepare the journal entry to record the capitalization

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Reference no: EM132640044

Question - On December 31, 2011, Taurus Group borrowed USD 320,000 at 10% payable annually to finance the construction of a new building. In 2012, the company made the following expenditures related to this building: March 1, USD 48,000; June 1, USD 120,000; July 1, USD 100,000; and December 1, USD 84,000. Additional information is provided as follows.

Other debt outstanding

 

10-year, 10% bond, December 31, 2009, interest payable annually

USD 370,000

6-year, 10% note, dated December 31, 2009, interest payable annually

USD 120,000

March 1, 2012, expenditure included land costs of USD 15,000

 

Interest revenue earned in 2012 on funds related to specific borrowing

USD 3,600

Required -

a. Determine the amount of interest to be capitalized in 2012 in relation to the construction of the building.

b. Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2012.

Reference no: EM132640044

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