Question

On December 31, 2019, Headland Inc. borrowed $3,420,000 at 12% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $410,400; June 1, $684,000; July 1, $1,710,000; December 1, $1,710,000. The building was completed in February 2021. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2013, interest payable annually $4,560,000 6-year, 10% note, dated December 31, 2017, interest payable annually $1,824,000 2. March 1, 2020, expenditure included land costs of $171,000 3. Interest revenue earned in 2020 $55,860 Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building. The amount of interest $ e Textbook and Media List of Accounts

Answer 1

Answer
Answer-A
Expenditure
Mar-01	$     4,10,400	10//12	$                   3,42,000
Jun-01	$     6,84,000	7//12	$                   3,99,000
Jul-01	$   17,10,000	6//12	$                   8,55,000
Dec-01	$   17,10,000	1//12	$                   1,42,500
			$                 17,38,500
Loans		Issued	Actual interest cost
12% to finance construction	$   34,20,000	12/31/19	$                   4,10,400
13% bond	$   45,60,000	years ago	$                   5,92,800
10% bond	$   18,24,000	years ago	$                   1,82,400
			$                 11,85,600
Average investment = $17,38,500
Avoidable interest cost = $17,38,,000 * 12% = $208620
Answer-B ( 31/12/2020)
Debit building                                        $2,08,620
Debit Interest expense                          $9,76,980
Credit cash                                          $11,85,600
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