sa & Claplel 10 (Lake lome portion) On November 1, 2013, Shalla Company contract
ID: 2530662 • Letter: S
Question
sa & Claplel 10 (Lake lome portion) On November 1, 2013, Shalla Company contracted Pfeifer Construction Co. to construct a building for $2,220,000. Shalla made the following payments to the construction company during 2014. (12 points) January 1 -- $500,000 April 1 -- $800,000 May 31 -- $400,000 August 1 -- $400,000 December 31 -- $120,000 Pfeifer Construction completed the building, ready for occupancy, on December 31, 2014. Shalla had the following debt outstanding at December 31, 2014. Specific Construction Debt 1. 12%, 3-year note to finance purchase of land and construction of the building, dated December 31, 2013, with interest payable annually on December 31: $1,500,000 Other Debt 2. 10%, 5-year note payable, dated December 31, 2010, with interest payable annually on December 31: $800,000 3. 13%, 10-year bonds issued December 31, 2009, with interest payable annually on December 31: $600,000 a. Compute the weighted average accumulated expenditures for 2014 Date of expenditure Amount Fraction of year Wtd avg expenditure Jan. 1 Apr. 1 May 31 Aug. 1 Dec. 31 Totals b. Compute actual interest for 2014 Debt Interest Actual interest TotalsExplanation / Answer
Date of Expenditure
Amount
Fraction of Year
Weighted Average Expenditure
Jan 1.
$500000
12/12
$500000
April 1.
$800000
9/12
$600000
May 31,
$400000
7/12
$233333
Aug 1,
$400000
5/12
$166667
Dec 31,
$120000
0/12
$0
Total
$2220000
$1500000
Type Of Debt
Debt Amount
Interest Rate
Actual interest
Specific Debt
$1500000
12%
$180000
General Debt
$800000
10%
$80000
General Debt
$600000
13%
$78000
Total
$2900000
$338000
Type Of Debt
Debt Amount
Interest Rate
Interest Amount
General Debt
$800000
10%
$80000
General Debt
$600000
13%
$78000
Total
$1400000
$158000
Weighted Average Interest Rate = Interest Amount / Debt Amount
= $158000/$1400000
= 11.29%
Weighted Average Expenditure
Interest Rate
Avoidable Interest
$1500000
12%
$180000
$0 (Additional Expenditure)
11.29%
$0
Total
$180000
Additional Expenditure are NIL. It is because that the weighted average expenditure and specific debt amount was same i.e. $1500000. If the Weighted Average Expenditure amount exceeds the amount of specific debt then the difference will be additional expenditure on which 11.29% of interest would be charged.
Date of Expenditure
Amount
Fraction of Year
Weighted Average Expenditure
Jan 1.
$500000
12/12
$500000
April 1.
$800000
9/12
$600000
May 31,
$400000
7/12
$233333
Aug 1,
$400000
5/12
$166667
Dec 31,
$120000
0/12
$0
Total
$2220000
$1500000
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