Problem 7 (Chapter 10A) Capitalization of Borrowing Costs

During 2017, Tibet Building Company constructed various assets at a total cost of $4.2 million. The weighted average

accumulated expenditures on assets qualifying for capitalization of interest during 2017 were $2.8

million. The company had the following debts outstanding at December 31, 2017:

1. 8%, five-year note to finance construction of various assets,dated January 1, 2017, with interest payable

annually on January 1:$1,800,000

2. 10%, ten-year bonds issued at par on December 31, 2012, with interestpayable annually on December

31:$2,000,000

3. 7%, three-year note payable, dated January 1, 2016, with interest payable annually on January 1:

$1,000,000

Required:

Calculate the amounts of the following for 2017 (show calculations):

a) avoidable interest,

b) total interest to be capitalized.