Assume that the project in E11- 8 was not completed in Year 1. Yawyag was required to make two additional payments to the contractor in Year 2: $ 900,000 on April 1 and $ 1,800,000 on August 1 of Year 2. On January 2 of Year 2, Yawyag was required to take out a $ 2,400,000, 9% line of credit to help finance its operating cycle. The plant was completed on October 1.
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.
In Exercise
Date Amount
January 2 ………………………. $ 2,400,000
August ………………………… 1 1,800,000
October ………………………… 1 3,600,000
December………………………. 1 1,200,000