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:

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.