On January 3,2010, Mercury company began self-constructing an asset that qualified for interest capitalization. On January 5, Mercury borrowed $300,000 on an 8% construction loan just for the project. In addition Mercury had $700,000 of 6% notes payable and $400,000 of 9% bonds payable outstanding. Expenditures made throughout the year were as follows: March 1$250,000: June 1 $100,000; November 1 $450,000.

a. Compute the amount of interest that should be capitalized during 2010.

b. Prepare the journal entry to record the capitalization of interest at December 31,2010?



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