On December 31, 2021, Tsang Group borrowed HK$3,000,000 at 12% payable annually to finance the construction of a new building. In 2022, the company made the following expenditures related to this building: March 1, HK$360,000; June 1, HK$600,000; July 1, HK$1,500,000; and December 1, HK$1,200,000. Additional information is provided as follows.
1. Other debt outstanding
10-year, 11% bond, December 31, 2015, interest payable annually ……………………. HK$4,000,000
6-year, 10% note, dated December 31, 2019, interest payable annually …………….. HK$1,600,000
2. March 1, 2022, expenditure included land costs of HK$150,000
3. Interest revenue earned in 2022 on funds related to specific borrowing HK$49,000
Instructions
a. Determine the amount of borrowing cost to be capitalized in 2022 in relation to the construction of the building.
b. Prepare the journal entry to record the capitalization of borrowing costs and the recognition of interest expense, if any, at December 31, 2022.
