Problem

On March 1, Faye Co. began construction of a small building. The following expenditures were incurred for construction:

March 1     $ 75,000         April 1      $ 74,000
May 1        180,000          June 1      270,000
July 1         100,000

The building was completed and occupied on July 1. To help pay for construction $50,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $500,000, 10% note issued two years ago.

1) Calculate the actual interest cost.

2) Calculate the amount of interest to be capitalized.