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

**According to ASC 835-20-15-8, “If activities are undertaken for the purpose of developing land for a particular use, the expenditures to acquire the land qualify for interest capitalization while those activities are in progress. The interest cost capitalized on those expenditures is a cost of acquiring the asset that results from those activities. If the resulting asset is a structure, such as a plant or a shopping center, interest capitalized on the land expenditures is part of the acquisition cost of the structure.”

Answer 1

WEIGHTED AVERAGE ACCUMULATED EXPENDITURE
PAYMENT DATE	EXPENDITURES(A)	CAPITALISATION PERIOD (MONTH) (B)	WIEGHT(C=B/7)	WEIGHTED EXPENDITURE (A*C)
28-Mar	$              9,98,600	7	1.0000	$                                       9,98,600
30-Apr	$              1,48,000	6	0.8571	$                                       1,26,857
01-May	$            33,00,000	6	0.8571	$                                     28,28,571
30-Jul	$            22,00,000	3	0.4286	$                                       9,42,857
01-Sep	$            17,40,000	2	0.2857	$                                       4,97,143
01-Oct	$            26,40,000	1	0.1429	$                                       3,77,143
Total				$                                     57,71,171
OUT OF THIS $57,71,171 ; $50,00,000 IS FINANCED BY SPECIFIED LOAN AND BALANCE $7,71,171 FINANCED BY GENERAL PURPOSE LONG TERM NOTES; INTEREST ON SPECIFIC LOAN IS 6% AND INTEREST RATE FOR THE GENERAL PURPOSE LONG TERM NOTES IS 8% .
COMPUTATION OF AVOIDABLE INTERST
FUNDING	AMOUNT	RATE(%)	AVOIDABLE INTEREST
SPECIFIC LOAN	$            50,00,000	6.0000	$                   3,00,000
GENERAL LOAN	$              7,71,171	8.0000	$                      61,694
TOTAL			$                   3,61,694
INTEREST COST TO BE CAPITALISED IS $ 3,61,694