Question

Early in 2019, Dobbs Corporation engaged Kiner Construction, Inc. to design and construct a new manufacturing facility for Dobbs. Construction began on June 1, 2019, and was completed on December 31, 2019. Dobbs made the following payments to Kiner during 2019: Date Payment amount June 1, 2019, $6,000,000 August 31, 2019, 9,000,000 December 31, 2019 7,500,000 In order to finance the construction, Dobbs issued a $5,000,000, 10 year, 9% bond, issued at par on May 31, 2019, with interest payable annually on May 31. In addition to the $5,000,000 bond issue, Dobbs also had the following additional debt outstanding during 2019: $1,250,000 note payable, the interest rate of 12%, a maturity date of January 1, 2020, interest payable annually on January 1st. $1,000,000 loan payable, the interest rate of 7%, maturing on January 1, 2025, with interest payable quarterly. Requirements Compute the following amounts: 1. Weighted-average accumulated expenditures qualifying for capitalization of interest cost in 2019. 2. Maximum interest incurred during 2019. 3. Total amount of interest cost to be capitalized (i.e., included in the total cost of the manufacturing facility) for 2019. 4. The total cost of the facility.

Answer 1

Amounts are in $

Answer is inserted as a picture

Note :

As we have no information of which loan was used for this purpose mainly other than the bond. We have taken average interest rate of these two loans and used it for capitalisation.

In practice, we know which loan (note or general loan) which is used for paying this construction and we can capitalise interest of such loan