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In: Accounting

Marigold Corp. is constructing a building. Construction began on January 1 and was completed on December...

Marigold Corp. is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $6380000 on March 1, $5250000 on June 1, and $8050000 on December 31. Marigold Corp. borrowed $3250000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $6450000 note payable and an 11%, 4-year, $12350000 note payable. What amount of interest should be charged to expense? $1066729 $1456731 $1159129 $1996500

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Expert Solution

answer 1456731

Payment Funds used Annualised
01-Mar 6380000 10/12 $         5,316,667
01-Jun 5250000 7/12 $         3,062,500
31-Dec 8050000 0/12 $                        -  
weighted average expenditure $         8,379,167
Amount rate interest
Specific loan $              3,250,000 12% $            390,000
Oher loans
10 % Note $              6,450,000 10% $            645,000
11% note $           12,350,000 11% $         1,358,500
$           18,800,000 $         2,003,500
total interest incurred by the company $         2,393,500
weighted average rate = 10.66%
Weighted average of qualifying loan $              8,379,167
interest on specific loan $              3,250,000 12% $            390,000
interst on remainder of loans $              5,129,167 10.66% $            546,769
Avoidable interest $            936,769
capitalise lower of the avoidable and total interest $            936,769
remaining charged to expense $         1,456,731

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