Problem:
Diva builders spent $770,000 in 2012 on a construction project to build an office building. Diva also capitalized $65,000 of interest on the project in 2012. Diva financed the construction with 2 loans already outstanding. The first loan is for $10,000,000 at 6.5% and the second is $4,500,000 at 8%. The project was completed on November 30, 2013. Additional expenditures in 2013 were as follows:
| 31-Jan |
135,000 |
| 31-Mar |
170,000 |
| 31-Jul |
200,000 |
| 30-Sep |
220,000 |
| 30-Nov |
185,000 |
Required:
Question: Determine the cost of the office building at project completion and the capitalized interest for 2013 using the weighted-average debt method.
Note: Provide support for your rationale.