Problem 1: During 2012, Barden Building Company constructed various assets at a total cost of $10,500,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2012 were $7,000,000. The company had the following debt outstanding at December 31, 2012:
1. 10%, 5-year note to finance construction of various assets, dated January 1, 2012, with interest payable annually on January 1 $4,500,000
2. 12%, ten-year bonds issued at par on December 31, 2006, with interest payable annually on December 31 5,000,000
3. 9%, 3-year note payable, dated January 1, 2011, with interest payable annually on January 1 2,500,000
Instructions
1. Compute the weighted-average accumulated expenditures qualifying for capitalization of interest cost.
2. Compute the amount of avoidable interest.
3. How much interest is capitalized in 2009?
4. Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2009.
5. What is the amount of interest expense that will appear on Blaine's 2009 income statement?