Reference no: EM13554828
Amount of interest capitalized during construction. Nexor, a steel manufacturer, self-constructs a new manufacturing facility in Vermont. At the start of 2008, the Construction-in-Process account had a balance of $30 million. Construction activity occurred uniformly throughout the year. At the end of 2008, the balance wits $60 million before capitalization of interest for the year. The outstanding borrowings of the company during the year were as follows:
New Construction Loans at 8% per Year ................ $ 25,000,000
Old Bond Issues Averaging 6% Rate ..................... 100,000,000
Total Interest-Bearing Debt ............................... $125,000,000
a. Compute the amount of interest capitalized in the Construction-in-Process account for 2008.
b. Present journal entries for interest for 2008.
c. On December 31, 2009, Nexor completed the manufacturing facility and put it to work. Average Construction-in-Process for 2009 was $110 million. The debt listed above remained outstanding throughout the construction project and the firm did not issue any additional interest-bearing debt during this time. Present journal entries for 2009 related to interest expense and interest capitalization.