An enterprise fund issues $2 million of 6%, 10-year taxexempt bonds at the beginning of the year to finance the construction of a new water treatment plant. During the year, the enterprise fund earned $80,000 of interest income on the bond proceeds and incurred $120,000 of interest cost. The average construction cost for the year was $1 million. What amount of interest should be capitalized for the year under GASB Statement No. 89?
1. $0.
2. $40,000.
3. $60,000.
4. $120,000.