Construction Co. is building a warehouse for its own use. <br/>- Expenditures: Jan 1: $200,000; July 1: $400,000; Nov 1: $300,000.<br/>- Specific construction debt: $300,000 at 10%.<br/>- General debt: $1,000,000 at 5%.<br/><br/>What is the amount of interest to be capitalized for the year ended December 31?

1. **WAAE Calculation:**<br/> Jan 1: $200,000 * 12/12 = $200,000<br/> July 1: $400,000 * 6/12 = $200,000<br/> Nov 1: $300,000 * 2/12 = $50,000<br/> Total WAAE = $450,000.<br/><br/>2. **Interest Calculation:**<br/> Specific Debt ($300,000 @ 10%) covers first $300,000 of WAAE. Interest = $30,000.<br/> Remaining WAAE ($450,000 - $300,000 = $150,000) uses General Debt rate (5%). Interest = $150,000 * 5% = $7,500.<br/> Total Avoidable Interest = $30,000 + $7,500 = $37,500.<br/><br/>3. **Check Limit:**<br/> Actual Interest = ($300k * 10%) + ($1M * 5%) = $30k + $50k = $80,000.<br/> Avoidable ($37.5k) < Actual ($80k).<br/> Capitalize $37,500.