Western Company Entered into a Contract with Snape Construction Company

Multiple Choice

Western Company entered into a contract with Snape Construction Company to construct a building. Construction began in 2011 and was completed in 2012. As of January 1, 2012, Western had made total progress payments to Snape of $50,000. In addition, interest capitalized on the building during 2011 was $2,500. Western made additional payments on June 30, 2012, and December 31, 2012. Western had issued $80,000 of 9% bonds to finance part of the construction. The average interest on Western's additional debt was 11% for 2012.
How much interest should be capitalized by Western for 2012?

A) $6,750
B) $6,975
C) $13,500
D) $13,725