A company constructs a building for its own use. Construction
began on January 1 and ended on December 30. The expenditures for
construction were as follows: January 1, $540,000; March 31,
$640,000; June 30, $440,000; October 30, $720,000. To help finance
construction, the company arranged a 7% construction loan on
January 1 for $780,000. The company’s other borrowings, outstanding
for the whole year, consisted of a $5 million loan and a $7 million
note with interest rates of 9% and 6%, respectively.
Assuming the company uses the weighted-average method,
calculate the amount of interest capitalized for the year.
(Do not round intermediate calculations. Round your
percentage answer to 2 decimal places (i.e. 0.1234 should be
entered as 12.34%).)
|
Solution:
Weighted average interest rate of all other debt | |||
Debt | Amount | Interest rate | Interest amount |
7% Loan | $7,80,000 | 7% | $54,600 |
9% Loan | $50,00,000 | 9% | $4,50,000 |
6% Note | $70,00,000 | 6% | $4,20,000 |
Totals | $1,27,80,000 | $9,24,600 | |
Weighted average rate (total interets/ total debt) | 7.23% |
Weighted-Average accumulated expenditure and interest capitalized | |||
Date | Expenditure | Weigh | Avearge |
01-Jan | $5,40,000 | 12/12 | $5,40,000 |
31-Mar | $6,40,000 | 9/12 | $4,80,000 |
30-Jun | $4,40,000 | 6/12 | $2,20,000 |
30-Oct | $7,20,000 | 2/12 | $1,20,000 |
Accumulated Expenditure | $16,20,000 | $13,60,000 |
Average | Interest Rate | Capitalized Interest | ||
Avearge Accumulated Expenditure | $13,60,000 | 7.23% | $98,328 |
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