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4. (7 points) During 2014, Barden Building Company constructed various assets at a total cost of $12,600,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2014 were $8,400,000. The company had the following debt outstanding at December 31, 2014: 1. 10%, 5-year note to finance construction of various assets, dated January 1, 2014, with interest payable annually on January 1 $5,400,000 2. 12%, ten-year bonds issued at par on December 31, 2008, with interest payable annually on December 31 6,000,000 3. 9%, 3-year note payable, dated January 1, 2013, with interest payable annually on January 1 3,000,000 Instructions Compute the amounts of each of the following (show computations). 1. Avoidable interest. 2. Total interest to be capitalized during 2014

Answer 1

Answer Page No ① Given that Tobal cost - $ 12600,000 Coreighted average acumulated expenditure on assets = 48400, pot from the $8400,000, 05400,000 is financed by 10%, 5 year note. ' Amounts financed out of the general loans - 5400,000 — 5400,000 $3000,000 .: The interest orate on I weighted interest rate on specific loan % the general 10%. while. the loans is as follows Anreal interest oct 127., ten year bonds = 12 %.X 60001000 = $720.000 Annual interest at 9%, 3 year notes payable = 9% X 30. 5 $ 270,000

Page No @ 420.000 + 370,000 6000,000 +3000,000 weighted average interest rate = X100 999000___ 9000000 :: Avoidable interest for specific loan = 10°% x 5400,000 = $540,000 Avoidable interest for general pool e 11% X 3000,000 a = $ 330,000 :: Avoidable interest - 540000 + 330000 $870,000 T: Avoidable interesf = $870,000 This interest can be capitalized ş provided, it doesn't czceed the aclü al interest expense for the period. Total interest to be capitalized = $ 870,000