Problem II

On January 1, 2013, the Seikely-Anderson Company signed a contract with Jones Construction to build a new building for a total contract price of $1,200,000. The building will take one year to build and the following progress payments have been approved by both parties:

Start of contract $ 200,000

March 31, 2013 250,000

June 30, 2013 250,000

September 30, 2013 250,000

December 31, 2013 250,000

Total payments $1,200,000

On January 1, 2013, Seikely-Anderson borrowed $500,000 at 12% specifically for the project. The note was due in 18 months. The company had no other short-term debt but there were two long-term notes payable outstanding for the entire year: $1,500,000 note with an interest rate of 10% and a $2,500,000 note with an interest rate of 6%.

Required:

Calculate the amount of interest Seikely-Anderson should capitalize in 2013 assuming that the specific interest method is used.