amount of interest capitalized during construction nexor a ste 251805

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.

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