On February 10, 2017, Wilson Co. hired DEB Co. to construct a new headquarters building....
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Accounting
On February 10, 2017, Wilson Co. hired DEB Co. to construct a new headquarters building. The construction work commenced on May 1, 2017, and it is expected to continue through April 30, 2019. Wilson made progress payments to the contractor in 2017 as follows:
Date
Amount
May 1
$ 376,000
June 1
621,000
October 1
295,000
December 1
763,000
$2,055,000
Wilson took a $595,000 construction loan on May 1, 2017. The loan principal is due in full on April 30, 2019. Interest on the loan is incurred at the annual rate of 6%, payable monthly starting May 31, 2017. In addition to the construction loan, Wilson had the following debt outstanding throughout 2017:
Description
Principal
2-year, 7% note payable with interest payable annually
$350,000
5-year, 11% note payable with interest payable annually
$900,000
REQUIRED: Compute the interest to be capitalized by Wilson for 2017. Also, give the adjusting entry to record Wilsons capitalization of interest.
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