Hanson Company is constructing a building. Construction began on February 1 and

Question

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,908,000 on March 1, $1,212,000 on June 1, and $3,079,300 on December 31.

Hanson Company borrowed $1,162,300 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,116,300 note payable and an 11%, 4-year, $3,698,900 note payable. Compute avoidable interest for Hanson Company. Use the weighted-average interest rate for interest capitalization purposes. (Round percentages to 2 decimal places, e.g. 2.50% and final answer to 0 decimal places, e.g. 5,275.)

AVoidable interest=?

Explanation / Answer

Annualized Expenditure Payment Date Amount of Expenditure No.of months Annualized 1-Mar 1908000 10 1590000 1-Jun 1212000 7 707000 31-Dec 3079300 0 0 Total 2297000 Avoidable Interest Amount Interest Avoidable Interest Specific Loan 1162300 13% 151099 Other Loan 1134700 10.64% 120732 Total 2297000 271831 Weighted Average on other loans Particular Principal Interest 10%, 5 year Bond 2116300 211630 11%,4 year Bond 3698900 406879 Total 5815200 618509 Weighted Average rate 618509/5815200*100 10.64 Avoidable Interest $271,831 Ans

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