Problem - Capitalization of interest
Early in 2012, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2012 and was completed on December 31, 2012. Dobbs made the following payments to Kiner, Inc. during 2012:
Date Payment
June 1, 2012 $4,800,000
August 31, 2012 7,200,000
December 31, 2012 6,000,000
In order to help finance the construction, Dobbs issued the following during 2012:
1. $4,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2012, with interest payable annually on May 31.
2. 1,000,000 shares of no-par common stock, issued at $10 per share on October 1, 2012.
In addition to the 9% bonds payable, the only debt outstanding during 2012 was a $1,000,000, 12% note payable dated January 1, 2008 and due January 1, 2018, with interest payable annually on January 1.
Instructions - Compute the amounts of each of the following (show computations):
1. Weighted-average accumulated expenditures qualifying for capitalization of interest cost.
2. Avoidable interest incurred during 2012.
3. Total amount of interest cost to be capitalized during 2012