Question

Splish Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,500,000 on January 1, 2020. Splish expected to complete the building by December 31, 2020. Splish has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, issued December 31, 2019		$5,400,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021		3,780,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024		2,700,000

(a)

Assume that Splish completed the office and warehouse building on December 31, 2020, as planned at a total cost of $14,040,000, and the weighted-average amount of accumulated expenditures was $9,720,000. Compute the avoidable interest on this project. (Use interest rates rounded to 4 decimal places, e.g. 7.5825% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)

Answer 1