Question

Brief Exercise 10-04 Whispering Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $3,960,000 on March 1, $2,640,000 on June 1, and $6,600,000 on December 31. Whispering Company borrowed $2,200,000 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, $4,400,000 note payable and an 11%, 4-year, $7,700,000 note payable. Compute avoidable interest for whispering Company. Use the weighted average interest rate for interest capitalization purposes. (Round "Weighted average interest rate" to 4 decimal places, e.o. 0.2152 and final answer to 0 decimal places, e.g. 5,275.) Avoidable interest s Click if you would like to show Work for this question: Open Show Work LINK TO TEXT By accessing this Question Assistance, you will learn while you earn points based on the Print Potential

Answer 1

Construction of building- Whispering company
Schedule of weighted-average accumulated expenditure
Date	Amount	Current year capitalization period	Weighted average accumulated expenditures
1- march	$3960000	10/12	$3300000
1-june	$2640000	7/12	$1540000
31-december	$6600000	0/12	$0
	$13200000		$4840000

	Principal		Interest
12%,5- year note	$4400000	x12%	$528000
11%,4- year note	$7700000	x11%	$847000
$12100000 $1375000

Part a)

Weighted average interest rate on general borrowings =$1375000/$12100000 =11.3636%

Part b)

Avoidable interest =($2200000*10%) + ($4840000-$2200000)*11.3636%

=220000+299999.04

   =$519999.04