Capitalization of Interest Cost: On Jan 1, 20X0 HHS Corp. acquired a loan of $500,000 at an interest rate of 9% to specifically construct a silo at one of its grain storage facility. HHS also had two other loans outstanding on Jan 1, 20X0: $400,000 at 10% and $200,000 at 5%. HHS paid the following expenses towards the construction of the silo during the year: Date Amount Amount 3/1/20X0 $450,000 6/1/20X0 250,000 9/1/20X0 100,000 Determine the amount of interest that should be capitalized at the end of the year. Hints: 1. The amount to capitalize is the lower of actual amount of interest paid or the avoidable interest, which is defined as the interest that could have been avoided if the expenditures had not been made. 2. If the accumulated expenditures outstanding exceed the amount of the related specific new borrowing, interest should be computed on the excess using the weighted average interest rate for other borrowings of the company not to exceed actual interest costs. 3. Remember to use the average accumulated expenditure in determining the interest expense to be capitalized. In other words the interest to be capitalized does not necessarily equal the interest incurred on the specific borrowings, but that which pertains to the weighted average accumulated expenditures