Homework Problem #2

Early in 2014, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2014 and was completed on December 31, 2014. Dobbs made the following payments to Kiner, Inc. during 2014:

Date Payment

June 1, 2014 $6,000,000

August 31, 2014 9,000,000

December 31, 2014 7,500,000

In order to help finance the construction, Dobbs issued the following during 2014:

1. $5,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2014, with interest payable annually on May 31.

2. 1,000,000 shares of no-par common stock, issued at $10 per share on October 1, 2014.

In addition to the 9% bonds payable, the only debt outstanding during 2014 was a $1,250,000, 12% note payable dated January 1, 2010 and due January 1, 2020, with interest payable annually on January 1.

Instructions

Determine the amount of interest cost to be capitalized during 2014. Be sure to show supporting computations.