Assume a company borrowed $200,000 at 12% interest from State Bank on Jan. 1, 2020, for specific purposes of constructing special-purpose equipment to be used in its operations. Construction on the equipment began on Jan. 1, 2020, and the following expenditures were made prior to the projects completion on Dec. 31, 2020: Other general debt existing on Jan. 1, 2020: $500,000, 14%, 10-year bonds payable $300,000, 10%, 5-year note payable Instructions:

Step 1 - Determine which assets qualify for capitalization of interest.

Step 2 - Determine the capitalization period.

Step 3 - Compute weighted-average accumulated expenditures.

Step 4 - Compute the Actual and Avoidable Interest.

Step 5 Capitalize the Lesser of Avoidable Interest or Actual Interest as a Journal Entry. Journal entries to enter the cash payment are not necessary.