Question 2

Trump Company constructed various assets at a total cost of $8,400,000 during 2019. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2019 were $5,600,000. Trump had the following debts outstanding at December 31, 2019:

A. 12%, ten-year bonds issued at par on December 31, 2013, with interest payable annually on December 31 $4,000,000

B. 9%, 3-year note payable, dated January 1, 2018, with interest payable annually on January 1 $2,000,000

C. 10%, 5-year note to finance construction of various assets, dated January 1, 2019, with interest payable annually on January 1 $3,600,000

Required: Compute the amounts of each of the following. Show all workings.

i. Avoidable interest.

ii. Total interest to be capitalized during 2019. Explain the rational for the decision.