Dobie Industries began construction of a new plant for its own use on January 1. During the entirety of the year,
Dobie had the following debt outstanding.
On April 1, Dobie borrowed an additional $500,000 on a 14%, one-year construction note to help finance the plant
construction. Interest on all debt is paid at the end of each quarter. The average accumulated expenditures on con-
struction for each quarter of the year have already been computed. Assume that these amounts include the correct
amounts of previously capitalized interest. The payments and average accumulated expenditures follow.
Payments to
Contractors
Weighted Average
Accumulated Expenditures
Required
a. Compute the interest cost (1) to be capitalized and (2) to be expensed each of the four quarters.
b. Record journal entries related to (1) construction and (2) interest cost for quarters one, two, three, and four.
Record costs directly to the Building account.