Question

----- began the process of self-constructing an office building in 2017.
In order to provide for partial financing of the total construction cost, the company
issued a 15-month $400,000, 12% note, dated January 1, 2017. Also on Jan. 1, 2017
--- paid ----- Construction Corp. $500,000 as the first installment for the
overall building contract which called for the following additional payments made on a
a timely basis:
		1-Jun-17	$    900,000
		1-Oct-17	$ 1,000,000
In addition to the construction note, ----- had the following other debt outstanding:
			Amount	Interest
		Due	Outstanding	Rate
	Bonds	15-Jun-34	$ 4,500,000	8%
	Notes	30-Sep-21	$    500,000	10%
Instructions
Calculate the weighted average accumulated expenditures for 2017
Calculate the weighted average interest rate for non-specific borrowings
Calculate the "avoidable interest" for 2017
Calculate the actual interest for 2017
Calculate the capitalized interest for 2017

Answer 1

Answer:

(a)

Weighted average accumulated expenditures for 2017 = $1,275,000

Calculations are as below;

Answer:

Weighted average interest rate for non-specific borrowings = 8.2%

Calculations are as below:

Answer:

Avoidable interest is the interest amount applicable for the project.

Avoidable interest = $119,750

Calculations are same as given below in answer to 'capitalized interest'.

Answer: Actual Interest for 2017 = $458,000 Calculations are as below: Answer : Capitalized interest for 2017 = $119,750 Calculations are as below: Weighted average accumulated expenditures for 2017 = $1,275,000 To be funded from specific loan of $400,000 and balance ($1,275,000 - $400,000=) $875,000 from non-specific borrowings. Interest on specific loan = $400,000 * 12% = $48,000 Interest on non-specific borrowing = $875,000 * 8.2% = $71,750 Total capitalized interest = $48,000 + $71,750 = $119,750