On March 1, Gatt Co. began construction of a small building. The following expen
ID: 2371802 • Letter: O
Question
On March 1, Gatt Co. began construction of a small building. The following expenditures were incurred for construction:
March 1 $ 75,000 April 1 $ 74,000
May 1 180,000 June 1 270,000
July 1 100,000
The building was completed and occupied on July 1. To help pay for construction $50,000 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $500,000, 10% note issued two years ago.
(a) Calculate the weighted-average accumulated expenditures.
(b) Calculate avoidable interest.
Explanation / Answer
a
$101,000
b
Since the weighted-average expenditures are less than the $600,000, the interest rate to
apply will be the rate for the construction note (the new note)
$101,000 x 12% = $12,120
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