Harrisburg Furniture Company started construction of a combination office and wa

Question

Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2014. Harrisburg expected to complete the building by December 31, 2014. Harrisburg has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, issued December 31, 2013 $2,000,000

Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2015 1,400,000

Long-term loan-11% interest, payable on January 1 of each year; principal payable on January 1, 2018 1,000,000 Collapse question part

(a) Assume that Harrisburg completed the office and warehouse building on December 31, 2014, as planned at a total cost of $5,200,000, and the weighted average amount of accumulated expenditures was $3,600,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)

Explanation / Answer

Construction loan =$2,000,000

Interest rate =12%

Payable = semiannually

Interest payable on june 30 = 120000

Interest payable on december 31 = 120000

Total interest payable = 240000

Short-term loan= 1,400,000

Interest rate =10%

Payable= monthly

Interest expense = 1400000*10% * 1/12 each month = 11667

total interest expense = 140000

Long-term loan = 1,000,000

Interest rate-11%

Payable= yearly

interest expense = 110,000

planned total cost = $5200000

actual cost + capitalised interest = 5000000 + 240000

avoidable interest = 40000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.