Question

Tamarisk Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $4,140,000 on March 1, $2,760,000 on June 1, and $6,900,000 on December 31.

Tamarisk Company borrowed $2,300,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $4,600,000 note payable and an 11%, 4-year, $8,050,000 note payable. Compute avoidable interest for Tamarisk Company. Use the weighted-average interest rate for interest capitalization purposes. (Round "Weighted-average interest rate" to 4 decimal places, e.g. 2.5125 and final answer to 0 decimal places, e.g. 5,275.)
Avoidable Interest $=

Answer 1

date	amount	capitalization period	WA acc. Amount
1-Mar	4140000	10/12=0.83	3450000
1-Jun	2760000	7/12=0.58	1610000
31-Dec	6900000	0/12	0
total	13800000		5060000
Already existing Notes weighted interest:
rate	principal	interest
10%	4600000	460000
11%	8050000	885500
	12650000	1345500
Weighted average interest rate = 1345500/12650000 = 10.6364%
Avoidable Interest:	Principal	rate	Interest Amount
Construction loan	2300000	12%	276000
of Other loans	2760000	10.6364%	293564.64
Total	5060000		569564.64
So, avoidable interest are $569564.64