Question

Wildhorse Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,812,000 on March 1, $1,212,000 on June 1, and $3,007,840 on December 31.

Wildhorse Company borrowed $1,004,930 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,200,900 note payable and an 11%, 4-year, $3,365,100 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. (Round answer to 2 decimal places, e.g. 7.58%.)

Weighted-average interest rate:

Concord Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,920,000 on March 1, $1,200,000 on June 1, and $3,070,300 on December 31.

Concord Company borrowed $1,041,900 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,227,300 note payable and an 11%, 4-year, $3,799,000 note payable. Compute avoidable interest for Concord Company. Use the weighted-average interest rate for interest capitalization purposes. (Round percentages to 2 decimal places, e.g. 2.51% and final answer to 0 decimal places, e.g. 5,275.)

Avoidable interest:

Answer 1

(1)

Weighted- average interest rate

10.60%

Explanation:-

	Loan amount (a)	rate (b)	Interest (a) × (b)
Other loans:	$2,200,900	10%	$220,090
	$3,365,100	11%	$370,161
Total	$5,566,000		$590,251

Weighted average interest rate = Interest/ loan amount

Weighted average interest rate = $590,251/$5,566,000

Weighted average interest rate = 0.1060; 0.1060×100 = 10.60%

(2)

Avoidable interest

$269,183

Explanation:-

Date	Amount	capitalization period	weighted-average Accumulated expenditures
March.1	$1,920,000	10/12 (from march.1 to dec.31)	$1,600,000 ($1,920,000 ×10/12)
June. 1	$1,200,000	7/12 (from june.1 to dec. 31)	$700,000 ($1,200,000 ×7/12)
December. 31	$3,070,300	0/12	0
Total			$2,300,000

Weighted- average interest rate
	Loan amount (a)	rate (b)	Interest (a) × (b)
Other loans:	$2,227,300	10%	$222,730
	$3,799,000	11%	$417,890
Total	$6,026,300		$640,620

Weighted- average interest rate = $640,620/$6,026,300 = 10.63%

Calculation of avoidable interest
Weighted-average Accumulated expenditures = $2,300,000 (calculated above)
Interest on specific loan of $1,041,900 at the rate 13%	$135,447 ($1,041,900 ×13%)
Interest on reminder loan ($2,300,000 -$1,041,900) = $1,258,100 at the rate of 10.63%	$133,736.03 ($1,258,100 ×10.63%)
Avoidable interest	$269,183.03 or $269,183 (round off)