Response to the following problem:
(Capitalization of Interest Ch.)
Early in 2012, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobb's manufacturing facility. Construction was begun on June 1, 2012 and was completed on December 21, 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.