Question $1$:

Hilary Corp. contracted with a company to build a storage warehouse in Year $1.$ Construction

began on April $1$ at which time Hilary Corp. paid $$65,000.$ Hilary Corp. then made additional

payments as follows, based on progress made towards completion of the structure:

Hilary Corp. borrowed $$95,000$ on January $1$ specifically for this project at $8\%$ interest. Hilary had

the following non$-$specific borrowings $($i$.$e$.,$ general borrowings$)$ outstanding during the year:

$15\%,$$$2\mathrm{.}5$ million loan

$7\mathrm{.}5\%,$$$500,000$ loan

a$.$ How much interest should be capitalized on this building?

b$.$ What is the amount of interest expense that will appear on Hilary's Year $1$ income

statement?