Question

Brief Exercise 10-03

	Your answer is incorrect. Try again.

Wildhorse Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,980,000 on March 1, $1,260,000 on June 1, and $3,040,930 on December 31.

Wildhorse Company borrowed $1,078,330 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 9%, 5-year, $2,012,400 note payable and an 10%, 4-year, $3,382,000 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

enter the weighted-average interest rate rounded to 2 decimal places

%

Answer 1

Answer 1 Calculation of weighted average interest rate used for interest capitalization purposes Principal Interest 9%, 5-year Note Payable $2,012,400 $2,012,400 x 9% = 10%, 4-year Note Payable $3,382,000 $3,382,000 x 10% = $181,116 $338,200 $519,316 Total $5,394,400 Weighted-Average Interest Rate = $519,316 / $5,394,400 = 9.63% Calculation of weighted average accumulated expenditures for interest capitalization purposes Expenditures Capitalization Weighted Average Accumulated Date Amount Period Expenditures March, 01 $1,980,000 *10/12 $1,980,000 x 10/12 = $1,650,000 June, 01 $1,260,000 *7/12 $1,260,000 x 7/12 = $735,000 Dec, 31 $3,040,930 $6,280,930 $2,385,000 Note: Although it is not asked to calculate Weighted Average Accumulated Expenditures in the question but with the given information it is calculated as calculated above.