Answer:
a. $842,250
b. $842,250
Explanation:
The computation is shown below:
a. For avoidable interest
<u>Weighted average               Interest rate applied  avoidable interest</u>
<u>accumulated expenditures
</u>
$5,205,000                               10%                           $520,500
$2,925,000                                11%                            $321,750
Total                                                                             $842,250 
($8,130,000 - $5,205,000) 
Working note for interest rate applied 
<u>Particulars                   Principal                Interest</u>
12% ten year bond    $6,047,000            $725,640    
9% 3 year bond         $3,023,500            $272,115
total                            $9,070,500            $997,755
Now the interest rate is 
= $997,755 ÷ $9,070,500
= 11%
2. Now the total interest capitalized is 
Total interest is 
= $520,500 + $725,640 + $272,115
= $1,518,255
And, the total avoidable interest is $842,250
So we considered the lesser amount i.e. $842,250