On December 31, 2024, Novak Inc. borrowed $4,500,000 at 12% payable annually to finance the construction of a new building. In 2025, the company made the following expenditures related to this building: March 1, $540,000; June 1, $900,000; July 1, $2,250,000; December 1, $2,250,000. The building was completed in February 2026. Additional information is provided as follows. 1. Other debt outstanding: 10-year, 13% bond, December 31, 2018, interest payable annually 6-year, 10% note, dated December 31, 2022, interest payable annually $6,000,000 2,400,000 2. March 1, 2025, expenditure included land costs of $225,000. 3. Interest revenue of $73,500 earned in 2025. (a) Determine the amount of interest to be capitalized in 2025 in relation to the construction of the building. The amount of interest eTextbook and Media List of Accounts Save for Later $ Attempts: unlimited Submit Answer (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2025. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries.) Account Titles and Explanation eTextbook and Media List of Accounts Save for Later Debit Credit Attempts: unlimited Submit Answer
On December 31, 2024, Novak Inc. borrowed $4,500,000 at 12% payable annually to finance the construction of a new building. In 2025, the company made the following expenditures related to this building: March 1, $540,000; June 1, $900,000; July 1, $2,250,000; December 1, $2,250,000. The building was completed in February 2026. Additional information is provided as follows. 1. Other debt outstanding: 10-year, 13% bond, December 31, 2018, interest payable annually 6-year, 10% note, dated December 31, 2022, interest payable annually $6,000,000 2,400,000 2. March 1, 2025, expenditure included land costs of $225,000. 3. Interest revenue of $73,500 earned in 2025. (a) Determine the amount of interest to be capitalized in 2025 in relation to the construction of the building. The amount of interest eTextbook and Media List of Accounts Save for Later $ Attempts: unlimited Submit Answer (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2025. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries.) Account Titles and Explanation eTextbook and Media List of Accounts Save for Later Debit Credit Attempts: unlimited Submit Answer
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On December 31, 2024, Novak Inc. borrowed $4,500,000 at 12% payable annually to finance the construction of a new
building. In 2025, the company made the following expenditures related to this building: March 1, $540,000; June 1,
$900,000; July 1, $2,250,000; December 1, $2,250,000. The building was completed in February 2026. Additional
information is provided as follows.
1. Other debt outstanding:
10-year, 13% bond, December 31, 2018, interest payable annually
6-year, 10% note, dated December 31, 2022, interest payable annually
$6,000,000
2,400,000
2.
March 1, 2025, expenditure included land costs of $225,000.
3.
Interest revenue of $73,500 earned in 2025.
(a)
Determine the amount of interest to be capitalized in 2025 in relation to the construction of the building.
The amount of interest
$
eTextbook and Media
List of Accounts
Save for Later
Attempts: unlimited
Submit Answer
(b)
Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at
December 31, 2025. (Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and enter O
for the amounts. List all debit entries before credit entries.)
Account Titles and Explanation
eTextbook and Media
List of Accounts
Save for Later
Debit
Credit
Attempts: unlimited
Submit Answer
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