On December 31, 2011, Hurston Inc. borrowed $7,350,000 at 13% payable annually to finance the construction of a new building. In 2012, the company made the following expenditures related to this build

On December 31, 2011, Hurston Inc. borrowed $7,350,000 at 13% payable annually to finance the construction of a new building. In 2012, the company made the following expenditures related to this building: March 1, $882,000; June 1, $1,470,000; July 1, $3,675,000; December 1, $2,940,000. Additional information is provided as follows.

1. Other debt outstanding

10-year, 12% bond, December 31, 2005, interest payable annually $9,800,000

6-year, 11% note, dated December 31, 2009, interest payable annually $3,920,000

2. March 1, 2012, expenditure included land costs of $367,500

3. Interest revenue earned in 2012 $120,050

(a) Determine the amount of interest to be capitalized in 2012 in relation to the construction of the building.

The amount of interest

$

(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

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