After being in business for 3 years, Franco Ltd. realised that its warehouse facility was inadequate. The company decided to construct a new building to expand its warehouse capabilities.

To finance this venture, Franco Ltd. acquired a loan of $2,000,000 on January 1, 2018, with an interest rate of 10% payable annually. Construction on the new building started on January 1, 2018 with a projected completion date of December 31, 2018.

During the year, the companys expenditure schedule for the new building was as follows:

February 1, 2018: $960,000

May 31, 2018: $1,200,000

July 1, 2018: $750,000

September 30, 2018: $800,000

November 1, 2018: $720,000

The company had 2 other debts outstanding on January 1, 2018:

$3,000,000 8%, 7 year note, interest payable annually.

$1,500,000 12%, 10 year bond, interest payable per annum.

Franco Ltd. Financial year ends December 31.

Required: a) Compute the following. Round interest rate percentages calculated to 1 decimal place.

i. Weighted Average Accumulated Expenditure (WAAE). (16 marks)

ii. Actual Interest. (10 marks)

iii. Avoidable interest. (10 marks)

b) What amount of interest should be capitalised in 2018 in relation to the construction of the building?(2 marks)

c) Prepare the journal entry to record capitalisation of interest and the recognition of interest expense, if any, at December 31, 2018. (6 marks)