Question

Early in 2016, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2016 and was completed on December 31, 2016 Dobbs made the following payments to Kiner, Inc. during 2016:

Date		Payment
June 1, 2016		$1,680,000
August 31, 2016		2,520,000
December 31, 2016		2,100,000

In order to help finance the construction, Dobbs issued the following during 2016:

1.	$1,428,000 of 10-year, 9% bonds payable, issued at par on May 31, 2016, with interest payable annually on May 31.
2.	300,000 shares of no-par common stock, issued at $10 per share on October 1, 2016.

In addition to the 9% bonds payable, the only debt outstanding during 2016 was a $357,000, 12% note payable dated January 1, 2012 and due January 1, 2019, with interest payable annually on January 1.

Compute the amounts of each of the following:

1.		Weighted-average accumulated expenditures qualifying for capitalization of interest cost.
2.		Avoidable interest incurred during 2016.
3.		Total amount of interest cost to be capitalized during 2016.

1.		Weighted-average accumulated expenditures		$
2.		Avoidable interest		$
3.		Amount of interest cost to be capitalized		$

Answer 1

Please find below table useful to compute desired results: -

End results would be as follows: -