Capitalization of interest:

During 2014, Barden Building Company constructed various assets at a total cost of $12,600,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2014 were $8,400,000. The company had the following debt outstanding at December 31, 2014:

1.

10%, 5-year note to finance construction of various assets,

dated January 1, 2014, with interest payable annually on January 1

$5,400,000

2.

12%, ten-year bonds issued at par on December 31, 2008, with interest

payable annually on December 31

6,000,000

3.

9%, 3-year note payable, dated January 1, 2013, with interest payable

annually on January 1

3,000,000

Instructions

Compute the amounts of each of the following (show computations).

1.

Avoidable interest.

2.

Total interest to be capitalized during 2014.

9.

Asset 4:

Construction of Building A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows:

Date Payment

2/1 $100,000

6/1 380,000

9/1 460,000

11/1 120,000

To finance construction of the building, a $600,000 10% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 7%.

Required: Record all of the applicable acquisition/construction entries for each of these assets.

Please note the following for the Construction of the Building in Question 1

1. Capitalization Period

Begins when all 3 of these are in effect:

Expenditures for the asset have been made.

Activities for readying the asset are in progress(i.e. construction begins)

Interest costs are being incurred.

Ends when:The asset is substantially nd ready for use.

2. The Amount to Capitalize

Capitalizethe lesser of:

Actual interest costs

Avoidable interesti.e. the amount of interest that could have been avoided if expenditures for the asset had not been made.

Selecting Appropriate Interest Rate when determining the Avoidable Interest: