Yawyag Corporation engaged Sir Peter, Inc. to design and construct a manufacturing facility. Construction began on January 2 and was completed on December 31 of the current year. The following payments were made to the contractor during the year:
Date Amount
January 2 ………………………. $ 2,400,000
August ………………………… 1 1,800,000
October ………………………… 1 3,600,000
December………………………. 1 1,200,000
To specifically finance the project, Yawyag issued $ 2,800,000 of three- year, 5% notes payable on January 2. Interest is payable annually on December 31 each year. Prior to the commencement of the latest ­construction project, Yawyag had other debt in its capital structure. All general debt is outstanding as of the beginning of the current year. The general debt consists of $ 5,000,000 par value, 6% bonds payable and a $ 1,000,000, bondspay-ableanda$1,000,000, 9% note payable. Both debt instruments require annual interest payments each December 31.
Required
a. Compute the weighted- average accumulated expenditures for the current year.
b. Compute the amount of avoidable interest and actual interest cost for the current year.
c. Indicate the amount of total interest to be capitalized and the amount of interest to expense for the year.
d. Prepare the journal entry to record the December 31 interest payments. Assume that the interest is paid in cash and that any interest capitalized is recorded in the Construction in Progress account.