Metlock Company is constructing a building. Construction began
on February 1 and was completed on December 31. Expenditures were
$2,076,000 on March 1, $1,224,000 on June 1, and $3,056,900 on
December 31.
Metlock Company borrowed $1,115,600 on March 1 on a 5-year, 13%
note to help finance construction of the building. In addition, the
company had outstanding all year a 10%, 5-year, $2,074,900 note
payable and an 11%, 4-year, $3,717,000 note payable. Compute
avoidable interest for Metlock Company. Use the weighted-average
interest rate for interest capitalization purposes.
(Round percentages to 2 decimal places, e.g. 2.51% and
final answer to 0 decimal places, e.g. 5,275.)
Weighted average of qualifying loan
Date | Payments $ | Funds Used | Annualized $ |
March 1 | 2076000 | 10 months | 1730000 |
June 1 | 1224000 | 7 months | 714000 |
Dec 31 | 3056900 | 0 months | 0 |
Total | 2444000 |
Calculation of General Interest
10%, 5-year note payable => 2074900 * 10% => $207490
11%, 4-year note payable => 3717000 * 11% => $408870
General Interest => [ (408870 + 207490) / (2074900 + 3717000) ]
*100
=> (616360 / 5791900) * 100
=> 10.64%
Calculation of avoidable interest
Weighted average of qualifying loan => $2444000
Interest on specific loan => 1115600 * 13% => $145028
Interest on remainder of loan => (2444000 - 1115600) * 10.64%
=> $141342
Avoidable interest for Metlock Company => 145028 + 141342
Avoidable interest for Metlock Company =>
$286370
Metlock Company is constructing a building. Construction began on February 1 and was completed on December...
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