Problem 4

Early in 2012, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on Jan. 2, 2012 and was completed on December 31, 2012. Dobbs made the following payments to Kiner, Inc. during 2012:

Date Payment

January 2, 2012 $1,200,000

June 1, 2012 3,600,000

August 31, 2012 6,000,000

December 31, 2012 6,000,000

In order to help finance the construction, Dobbs issued the following during 2012:

1. $4,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2012, 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, 2012.

In addition to the 9% bonds payable, the only debt outstanding during 2012 was a $1,000,000, 12% note payable dated January 1, 2008 and due January 1, 2018, with interest payable annually on January 1.

Instructions

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

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

2. Avoidable interest incurred during 2012.

3. Total amount of interest cost to be capitalized during 2012.