Question
In: Accounting
Question text Company began construction of a machine on 1/1/2021. Company borrowed $700,000 at 10% on...
Question text
Company began construction of a machine on 1/1/2021. Company borrowed $700,000 at 10% on 1/1/2021 for this project. The project was under construction during the entire calendar year. Expenditures were made on the project during the year:
| Expenditure | || Date |
| 100,000 | 1/1/2021 |
| 300,000 | 3/1/2021 |
| 600,000 | 7/1/2021 |
| 400,000 | 10/1/2021 |
Company also had $1,000,000 outstanding at 12% during the entire year.
Required:
Calculate Avoidable and Actual Interest. Show work to receive credit.
Solutions
Expert Solution
| Weighted average accumulated expenditure:- | |||
| Date | Expenditure $ | Period | Weighed Average accumulated expenditure $ |
| 01-01-2021 | 100,000 | 12/12 | 100,000 |
| 01-03-2021 | 300,000 | 10/12 | 250,000 |
| 01-07-2021 | 600,000 | 6/12 | 300,000 |
| 01-10-2021 | 400,000 | 3/12 | 100,000 |
| Total | 1,400,000 | 750,000 | |
| Interest to be capitalize:- | Avoidable Interest | ||
| Weighed Average accumulated expenditure | Appropriate Interest rate | Avoidable Interest | |
| 700,000 | 10% | 70,000 | |
| 50,000 | 12% | 6,000 | |
| Total | 76,000 | ||
| Avoidable Interest | $ 76,000 | ||
| Actual Interest | $ 190,000 | ( 700,000 x 10% ) + ( 1,000,000 x 12% ) | |
ekkarill92 answered 2 years agoRelated Solutions
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows: January 1, 2021 $ 2,020,000 March 1,
2021 1,740,000 June 30, 2021 1,940,000 October 1, 2021 1,740,000
January 31, 2022 441,000 April 30, 2022 774,000 August 31, 2022
1,071,000 On January 1, 2021, the company obtained a $4,900,000
construction loan with a 12% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
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January 1, 2021
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1,090,000
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June 30,
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980,000
October 1,
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January 31,
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April 30,
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August 31,
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loan with a 16% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021 $ 1,680,000
March 1, 2021 1,260,000
June 30, 2021 1,460,000
October 1, 2021 1,260,000
January 31, 2022 369,000
April 30, 2022 702,000
August 31, 2022 999,000
On January 1, 2021, the company obtained a $4,000,000
construction loan with a 12% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021
$
1,200,000
March 1, 2021
900,000
June 30, 2021
1,100,000
October 1, 2021
900,000
January 31, 2022
315,000
April 30, 2022
648,000
August 31, 2022
945,000
On January 1, 2021, the company obtained a $3,500,000 construction
loan with a 12% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021
$
1,820,000
March 1, 2021
1,440,000
June 30, 2021
1,640,000
October 1, 2021
1,440,000
January 31, 2022
396,000
April 30, 2022
729,000
August 31, 2022
1,026,000
On January 1, 2021, the company obtained a $4,400,000
construction loan with a 14% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021
$
1,940,000
March 1, 2021
1,680,000
June 30, 2021
1,880,000
October 1, 2021
1,680,000
January 31, 2022
432,000
April 30, 2022
765,000
August 31, 2022
1,062,000
On January 1, 2021, the company obtained a $4,800,000 construction
loan with a 14% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021
$
1,350,000
March 1, 2021
1,080,000
June 30, 2021
1,280,000
October 1, 2021
1,080,000
January 31, 2022
342,000
April 30, 2022
675,000
August 31, 2022
972,000
On January 1, 2021, the company obtained a $3,800,000 construction
loan with a 15% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021 $ 1,500,000
March 1, 2021 1,200,000
June 30, 2021 1,400,000
October 1, 2021 1,200,000
January 31, 2022 360,000
April 30, 2022 693,000
August 31, 2022 990,000
On January 1, 2021, the company obtained a $4,000,000
construction loan with a 14% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021
$
2,020,000
March 1, 2021
1,740,000
June 30, 2021
1,940,000
October 1, 2021
1,740,000
January 31, 2022
441,000
April 30, 2022
774,000
August 31, 2022
1,071,000
On January 1, 2021, the company obtained a $4,900,000 construction
loan with a 12% interest rate....
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used...
On January 1, 2021, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2022. Expenditures on
the project were as follows:
January 1, 2021
$
1,820,000
March 1, 2021
1,440,000
June 30, 2021
1,640,000
October 1, 2021
1,440,000
January 31, 2022
396,000
April 30, 2022
729,000
August 31, 2022
1,026,000
On January 1, 2021, the company obtained a $4,400,000 construction
loan with a 14% interest rate....
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