Question

Construction of a new building began on April 1 and was completed on October 29. Construction expenditures were as follows:

May 1	$3,300,000
July 30	2,200,000
September 1	1,740,000
October 1	2,640,000

MMI borrowed $5,000,000 at 6% on April 1 to help finance construction. This loan, plus interest, will be paid in 2022. The company also had a $6,650,000, 8% long-term note payable outstanding throughout 2021.

Weighted Average Accumulated Expenditures were: [Round expenditure to nearest dollar]

Date	Expenditure	Months financed (out of 7)	WA Accum Exp
March 28**	$ 998,600	7	998,600
April 30**	148,000	6	126,857
May 1	3,300,000
July 30	2,200,000
September 1	1,740,000
October 1	2,640,000
Total

Construction of a new building began on April 1 and was completed on October 29. Construction expenditures were as follows:

May 1	$3,300,000
July 30	2,200,000
September 1	1,740,000
October 1	2,640,000

MMI borrowed $5,000,000 at 6% on May 1 to help finance construction. This loan, plus interest, will be paid in 2022. The company also had a $6,650,000, 8% long-term note payable outstanding throughout 2021.

Avoidable interest on the building was:

WA Accum Expend	5,771,171		Avoidable Interest	Actual Interest
construction loan		6%
note payable		8%
Total

[Hint: Lesser of Avoidable or Actual Interest is capitalized.]

The building would be recorded on the balance sheet as:

Total expenditures	9,880,000
Capitalized interest
Total historical cost

Answer 1