Question

Early in 2017, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2017 and was completed on December 31, 2017. Dobbs made the following payments to Kiner, Inc. during 2017:

Date Payment

June 1, 2017 $2,000,000

August 31, 2017 3,000,000

December 31,2017 2,500,000

In order to help finance the construction, Dobbs issued the following during 2017:

1. $1,700,000 of 10-year, 9% bonds payable, issued at par on May 31, 2017, with interest payable annually on May 31.

2. 300,000 shares of no-par common stock, issued at $10 per share on October 1, 2017

In addition to the 9% bonds payable, the only debt outstanding during 2017 was $425,000, 12% note payable dated January 1, 2013 and due Janurary 1, 2023, with interest payable annually on January 1.

Instructions

Compute the amounts of each of the following (show computations)

1. Weighted-average accumulated expenditures qualifying for capitalization of interest cost.

2. Avoidable interest incurred during 2017.

3. Total amount of interest cost to be capitalized during 2017.

Answer 1

Answer to Question 1:

Answer to Question 2:

Answer to Question 3: