Doggy Co. began construction of a new cutter for the U.S. Coast Guard on January 1, 2011 and completed construction of the ship on October 31, 2012. To finance construction, Doggy took out an $8,000,000, 2-year 6% construction loan on February 1, 2011. Interest on the loan was to be paid annually on the anniversary date of the loan. Doggy has no other outstanding interest-bearing debt. Doggy made the following expenditures in conjunction with this construction project: Date: Amount: 2/1/2011 $1,050,000 3/31/2011 $900,00 6/1/2011 $750,000 10/1/2011 $1,000,000 12/31/2011 $600,000 3/1/2012 $900,000 9/1/2012 $250,000

1. How much interest should Doggy capitalize in 2012 (not 2011) related to the cutter project? 2. How much interest should Doggy expense in 2012 (not 2011)?