Early in 2014, Dorothy Corporation engaged Cathy, Inc. to design and construct a complete modernization of Dorothy's manufacturing facility. Construction was begun on June 1, 2014 and was completed on December 31, 2014. Dorothy made the following
payments to Cathy, Inc. during 2014:
Date Payment
June 1, 2014 $6,000,000
August 31, 2014 9,000,000
December 31, 2014 7,500,000
In order to help finance the construction, Dorothy issued the following during 2014:
1. $5,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2014, 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, 2014.
In addition to the 9% bonds payable, the only debt outstanding during 2014 was a $1,250,000, 12% note payable dated January 1, 2010 and due January 1, 2020, 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 2014.
3. Total amount of interest cost to be capitalized during 2014