Question

Teal Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $4,860,000 on March 1, $3,240,000 on June 1, and $8,100,000 on December 31. Teal Company borrowed $2,700,000 on March 1 on a 5-year, 10% note to help finance construction of the building. In addition, the company had outstanding all year a 12%, 5-year. $5,400,000 note payable and an 11%, 4-year. $9,450,000 note payable. Compute avoidable interest for Teal Company. Use the weighted-average interest rate for interest capitalization purposes. (Round "Weighted- average interest rate" to 4 decimal places, e.g. 0.2152 and final answer to 0 decimal places, e.g. 5,275.) Avoidable interest $

Answer 1

March 1	4,860,000	9/12	3,645,000
June 1	3,240,000	7/12	1,890,000
Dec 31	8,100,000	-	5,535,000

5,400,000	12%	648,000
9,450,000	11%	1,039,500
14,850,000		1,687,500

Weighted Average rate

= 1,687,500 / 14,850,000

= 11.3636

Avoidable interest:

2,700,000	10%	270,000
2,835,000	11.3636%	322,158
(5,535,000-2,700,000)		592,158