Question

1.) Metlock Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,520,000 on March 1, $1,680,000 on June 1, and $4,200,000 on December 31.

Metlock Company borrowed $1,400,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 12%, 5-year, $2,800,000 note payable and an 11%, 4-year, $4,900,000 note payable. Compute avoidable interest for Metlock Company. Use the weighted-average interest rate for interest capitalization purposes. (Round "Weighted-average interest rate" to 4 decimal places, e.g. 0.2152 and final answer to 0 decimal places, e.g. 5,275.)

Avoidable interest $___________

2.) Marigold Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,052,000 on March 1, $1,200,000 on June 1, and $3,007,200 on December 31.

Marigold Company borrowed $1,042,720 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, $2,039,800 note payable and an 10%, 4-year, $3,462,500 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. (Round answer to 2 decimal places, e.g. 7.58%.)

Weighted-average interest rate:____________%

Answer 1

Answer-1
Weighted average of qualifying loan
Date	Payments $	Funds Used	Annualized $
Mar-01	$          25,20,000	10 months	$               21,00,000
Jun-01	$          16,80,000	7 months	$                 9,80,000
Dec-31	$          42,00,000	0 months	$                            -
Total			$               30,80,000
Calculation of General Interest
12%, 5-year note payable => 2800000 * 12% => $336000
11%, 4-year note payable => 4900000 * 11% => $539000
General Interest => [ (539000 + 336000) / (2800000 + 4900000) ] *100
=> (616360 / 5791900) * 100
> 11.36%
Calculation of avoidable interest
Weighted average of qualifying loan => $3080000
Interest on specific loan => 1400000 * 12% => $168000
Interest on remainder of loan => (3080000 - 1400000) * 11.36% => $190848
Avoidable interest for Metlock Company => 168000 + 190848
Avoidable interest for Metlock Company => $358848

Answer-2
	Principal	Interest
9%, 5-year	$       20,39,800	$         1,83,582
10%, 4-year	$       34,62,500	$         3,46,250
Total	$       55,02,300	$         5,29,832
Weighted-average interest rate = 529832/5502300=			9.63%
Please like ( Positive Rating )