Question

Bonita Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,160,000 on March 1, $1,440,000 on June 1, and $3,600,000 on December 31.

Bonita Company borrowed $1,200,000 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, $2,400,000 note payable and an 11%, 4-year, $4,200,000 note payable. Compute avoidable interest for Bonita 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 0 decimal places, e.g. 5,275.)

Avoidable interest

$

Answer 1

1. Schedule of Weighted-Average accumulated expenditure -

2. Weighted average interest rate on general borrowings = 10% * 64/184 + 11%*120/184 = 10.65%

3. Interest Calculator -

4. Avoidable Interest = ($1,200,000 x 10%) + ($2,640,000-1,200,000) x 11.36%

= $ 283,584