Question

On January 1, 2017, UAE Inc. began construction of an automated car system. The system was finished and ready for use on 12-31 2017. Expenditures on the project were as follows January 1, 2017 April 1, 2017 July 1, 2017 December 31, 2017 $100,000 200,000 200,000 500,000 On January 1, 2017, UAE borrowed $225,000 on a construction loan at 12 % interest. These loans were outstanding throughout the construction period. The company had $750,000 in 9% bonds outstanding in 2017. 1. Average accumulated expenditures for 2017 by the end of the construction period was: 2. The avoidable interest for 2017 was: 3. What is the actual interest? 4. What is the total cost of the project?

Answer 1

Solution 1:

Construction of Building - UAE Inc.
Schedule of Weighted-Average accumulated expenditure
Date	Amount	Current year capitalization period	Weighted Average Accumulated Expenditures
1-Jan-17	$100,000.00	12/12	$100,000
1-Apr-17	$200,000.00	9/12	$150,000
1-Jul-17	$200,000.00	6/12	$100,000
31-Dec-17	$500,000.00	0/12	$0
	$1,000,000.00		$350,000

Solution 2:

Total avoidable interest for 2017 = ($225,000 * 12%) + ($125,000*9%) = $38,250

Solution 3:

Actual interest = ($225,000*12%) + ($750,000*9%) = $94,500

Solution 4:

Total cost of project = Total cost + avoidable interest = $1,000,000 + $38,250 = $1,038,250