Question

Concord Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $4,320,000 on March 1, $2,880,000 on June 1, and $7,200,000 on December 31. Concord Company borrowed $2,400,000 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, $4,800,000 note payable and an 11%, 4-year, $8,400,000 note payable. Compute avoidable interest for Concord 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 O decimal places, e.g. 5,275.) Avoidable interest $

Answer 1

	Amount	Interest Rate	Interest
12 % Note payable	$ 4,800,000	12%	$ 576,000
11% Note payable	$ 8,400,000	11%	$ 924,000
Total	$ 13,200,000		$ 1,500,000
	Weigted average interest rate     = Total Interset / Total Note Amount     =   $ 1,500,000 / $ 13,200,000		11.36%

Date	Expenditures (A)	Capitalisation period (B)	weighted Average Expenditure (A x B)
March 1	$ 4,320,000	10 /12	$ 3,600,000
June 1	$ 2,880,000	7 /12	$ 1,680,000
December 31	$ 7,200,000	0 / 12	$ 0
	$ 16,800,000		$ 5,280,000

	Amount	Interest rate	Avoidable Interest
Loan Amount	$ 2,400,000	10%	$ 240,000
Other loan ($5,280,000 (-) $ 2,400,000)	$ 2,880,000	11.36%	$ 327,168
	Avoidable Interest =		$ 567,168