Exercise 10-7 LINK TO TEXT Exercise 10-7 Grouper Furniture Company started const
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Question
Exercise 10-7
LINK TO TEXT
Exercise 10-7
Grouper Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,024,000 on January 1, 2017. Grouper expected to complete the building by December 31, 2017. Grouper has the following debt obligations outstanding during the construction period.Construction loan-12% interest, payable semiannually, issued December 31, 2016 $1,990,600 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2018 1,603,500 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2021 990,300
Explanation / Answer
Computation of avoidable interest:-
Interest on loan specifically for construction 238,872
(1,990,600)*12
Interest on remaining loan upto weighted avg
Expenditures using 'weighted average' rate 185,092
(1,786,600*10.36%)
______________
Total Avoidable interest 423,964
Notes : Calculation of weighted average rate
Rate Amount of loan interest
Short term loan 10% 1,603,500 160,350
Long term loan 11% 990,300 108, 300
- - - - - - - - - - - - - - -
2,593,800
Weighted avg rate=10.36%
=268,650/2,593,800
Depreciation =(5,167,700-302,800)/30
=162,163
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