Problem 1 - Capitalization of Interest (15 points)

Early in 2017, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2017 and was completed on December 31, 2017. Dobbs made the following payments to Kiner, Inc. during 2017:

Date Payment

June 1, 2017 $2,000,000

August 31, 2017 3,000,000

December 31, 2017 2,500,000

In order to help finance the construction, Dobbs issued $1,700,000 of 10-year, 9% bonds payable, issued at par on May 31, 2017, with interest payable annually on May 31.

In addition to the 9% bonds payable, the only debt outstanding during 2017 was a $425,000, 12% note payable dated January 1, 2013 and due January 1, 2023, with interest payable annually on January 1.

Instructions

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

Weighted-average accumulated expenditures qualifying for capitalization of interest cost.

Avoidable interest incurred during 2017.

Total amount of interest cost to be capitalized during 2017.