Question

In: Accounting

Ventram, Inc. decided to open a new retail outlet in a neighboring town.  On January 1, 2019,...

Ventram, Inc. decided to open a new retail outlet in a neighboring town.  On January 1, 2019, Ventram took out a $400,000 construction loan and purchased the land on January 15, 2019.  Construction for the new store began on March 1, 2019.  The company expected to complete construction in early 2020.  Information about 2019 construction expenditures and details about Ventram’s debt structure are included below.

Ventram Construction Expenditures - 2019
Land purchase Jan. 15, 2019 $200,000
Payment for excavation and foundation work Mar. 31, 2019 50,000
Payment for framing, electrical, plumbing, etc. June 30, 2019 350,000
Payment for drywall, fixtures, etc. Dec. 31, 2019 150,000
Ventram Debt Structure - 2019
Contruction loan for retail building project Jan. 1, 2019 $400,000 6%
Note payable Mar. 31, 2018 350,000 8%
Bond payable Oct. 31, 2018 250,000 10%


What was the total weighted average accumulated expenditure for the Ventram project? What was the weighted average interest rate on general debt (non-project specific)?

a. $379,167; 8.83%

b. $404,167; 9.00%

c. $404,167; 7.70%

d. $550,000: 8.83%

e. $379,167: 7.70%

Solutions

Expert Solution

Date Expendtiure Weight Weight Average $
Constrcution Start Mar.1,2019            200,000 10/12                  166,667
Mar.31,2019                50,000 9/12                     37,500
June.30,2019            3,50,000 6/12                  175,000
Dec.31,2019            1,50,000                               -                                -  
Weighted average Expendiure                  379,167
A B A x B
Debt Amount Interest rate Interest Amount
Note payable            350,000 8%                     28,000
Bond payable            250,000 10%                     25,000
Total            600,000                     53,000
Weighted average interest rate 8.83% (53,000 / 600,000 )
Correct answer is option a.

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