Question

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

Answer 1

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