Question

Turkey Incorporated began constructing a building on the 1^st of January and completed construction on the 31^st of December, of the same year. Costs on the construction at various points throughout this one-year period totaled $9,480. Assume the weighted average accumulated expenditures is $3,000.

On January 1, Turkey borrowed $1,600 to finance the construction. They signed a 5-year, 12% note when they borrowed the money. Additional debt Turkey owed during the entire year included a 10%, 3-year, $1,000 note and an 13%, 4-year, $1,500 note. Round intermediate calculations to four decimals (e.g. 0.359782 rounds to 36.98%) and final answers to whole dollars.

(a) What is the amount of avoidable interest? (12 points)

(b) How much interest is capitalized for the year? Explain in words and calculations, how you made this decision. (8 points)

Answer 1