In$-$Class Problem $2$: Capitalized Interest

On December $31,2021,$ Star Inc. borrowed $$1,800,000$ at $12\%$ payable annually to finance the

construction of a new building. In $2022,$ the company made the following expenditures related to this

building: March $1,$ $$560,000$; June $1,$ $$800,000$; July $1,$ $$1,700,000$; December $1,$ $$1,500,000.$ The

building was completed in February $2023.$ Additional information is provided as follows.

Other financing outstanding all year

$15-$year, $10\%$ bond, interest payable annually

$$3,000,000$

$5-$year, $8\%$ note, interest payable annually

$$1,400,000$

$200,000$ shares of no$-$par common stock, issued at $$10$ per share.

Instructions

$($a$)$ Determine the amount of interest to be capitalized in $2022$ in relation to the construction of the

building.

Compute weighted$-$average accumulated expenditures for $2022.$

Compute the avoidable interest.

$*$Computation of Weighted Average Interest Rate on Other Debt

Weighted Average Interest Rate $=($ Total Interest $)/($ Total Principal $)$

Compute the actual interest.

Determine the amount to capitalize.

$($b$)$ Prepare the journal entry to record the capitalization of interest and the recognition of interest

expense, if any, at December $31,2022.$