Marigold Corp. is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $6380000 on March 1, $5250000 on June 1, and $8050000 on December 31. Marigold Corp. borrowed $3250000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $6450000 note payable and an 11%, 4-year, $12350000 note payable. What amount of interest should be charged to expense? $1066729 $1456731 $1159129 $1996500
answer 1456731
Payment | Funds used | Annualised | |
01-Mar | 6380000 | 10/12 | $ 5,316,667 |
01-Jun | 5250000 | 7/12 | $ 3,062,500 |
31-Dec | 8050000 | 0/12 | $ - |
weighted average expenditure | $ 8,379,167 | ||
Amount | rate | interest | |
Specific loan | $ 3,250,000 | 12% | $ 390,000 |
Oher loans | |||
10 % Note | $ 6,450,000 | 10% | $ 645,000 |
11% note | $ 12,350,000 | 11% | $ 1,358,500 |
$ 18,800,000 | $ 2,003,500 | ||
total interest incurred by the company | $ 2,393,500 | ||
weighted average rate = | 10.66% | ||
Weighted average of qualifying loan | $ 8,379,167 | ||
interest on specific loan | $ 3,250,000 | 12% | $ 390,000 |
interst on remainder of loans | $ 5,129,167 | 10.66% | $ 546,769 |
Avoidable interest | $ 936,769 | ||
capitalise lower of the avoidable and total interest | $ 936,769 | ||
remaining charged to expense | $ 1,456,731 |
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