The following information is from Bowin Inc. for a long-term construction project that is expected to be completed in January of next year. The construction project is for a building intended for the company's own use. The capital expenditure on January 1 of the current year is for the purchase of land for the building site. No new construction loans were opened for the project during the year. All debt was outstanding for the full year. Capital Expenditures for Current Year Date Actual Expenditures Jan. 1 Mar. 31 June 30 Nov. 30 $72.000 2,160,000 4,320,000 2,160,000 Outstanding Debt in Current Year Debt Debt Amount Interest Rate Note payable $2,400,000 8% Note payable 1,920,000 Bond payable 4,800,000 Note payable 1,200,000 8% 10% 9% Compute Interest to Capitalize and Expense Journal Entry in Year 1 Journal Entries in Year 2 a. Compute (1) interest to be capitalized and (2) interest to be expensed, during the year. Calculation of Actual Interest Debt Debt Amount Interest rate Interest Amount Specific Debt Construction loan 0% General Debt Note payable $ 2,400,000 8% S 192,000 Note payable 1,920,000 8% - 153,600 Bond payable 4,800,000 Note payable 1.200.000 Total 480.000 108,000 933,600 Calculation of Weighted Average Accumulated Expenditures Date Months Outstanding WA Accum. Expenditures 10% 996- January March 31 Expenditures 72,000 2,160,000 12 $ 9 x 72,000 1,620,000 June 30 November 30 4,320,000 2.160,000 6 2,160,000 1 180,000 Total 4,032,000 Calculation of annual interest rate used in the schedule that follows Numerator + Denominator = General Debt S 933,600 $ 4,032,000 x = Calculation of Avoidable Interest Interest Rate 23.15% Debt Category Weighted Average Accumulated Expenditures Specific Debt $ General Debt Total Interest Avoidable Rate Interest 0% $ 0 0 x 0.2315 0 0 x 0 x