Question

Wildhorse Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,944,000 on March 1, $1,224,000 on June 1, and $3,032,200 on December 31. Wildhorse Company borrowed $1,016,400 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 9%, 5-year, $2,206,100 note payable and an 10%, 4-year, $3,702,000 note payable. Compute avoidable interest for Wildhorse 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.)

Answer 1

	Construction began on February1
		Amount	Interest rate	Date of borrowing
	Specific Borrowing	$1,016,400	13%	.Mach1
	Other borrowing	$2,206,100	9%
	Other borrowing	$3,702,000	10%
	Construction completed on	.Dec31
			Interest rate	Interest costMarch1 to Dec31)
	Specific Borrowing	$1,016,400	7%	$        59,290	(1016400*0.07*(10/12)
				AnnualInterest cost
	Other borrowing	$2,206,100	9%	$198,549
	Other borrowing	$3,702,000	10%	$370,200
	Total	$5,908,100		$568,749
	Weighted Average interest rate	9.6266%	(568749/5908100)
	Amount used from other than specific borrowing on March1	$927,600	(1944000-1016400)
	Amount of interest on this amoun used	$    74,413.60	(927600*0.096266*(10/12)
	Anount spent on June1	$1,224,000
	Amount of interest on this amoun used	$    68,733.91	(1224000*0.096266*(7/12)
	TOTAL INTEREST CAPITALIZED:
	Interest on Specific borrowing	$    59,290.00
	Additional interest for March1, expenses	$    74,413.60
	Interest on June1 expenses	$    68,733.91
	Total Interest Capitalized	$ 202,437.50
	Interest on specific borrowing	$    59,290.00
	Interest on other than specific borrowing	$ 143,147.50	(202437.50-59290)
	Total interest for the year on other than specific borrowing	$568,749
	Avoidable Interest	$425,601	(568749-143147.50)