a. Jill Corp. is constructing a building. Construction began February 1 and was

Question

a. Jill Corp. is constructing a building. Construction began February 1 and was completed December 31. Expenditures were $2,500,000 on April 1, $2,000,000 on July 1, and $1,500,000 on December 31. What is the weighted-average accumulated expenditures for interest capitalization purposes?

b. Jill Corp. (see #25 above) borrowed $1,000,000 on April 1 on a 4-year, 10% note specifically to help finance construction of the building. In addition, the company had other outstanding debt all year including an 8%, 5-year, $1,500,000 note payable and a 12%, 6-year, $2,000,000 note payable. Compute the weighted-average interest rate used for interest capitalization purposes (round two decimal places, i.e. XX.XX%):

c. Use the information for Jill Corp. above to compute avoidable interest:

Explanation / Answer

Part-1:- Expenditure incurred on No of Months weights Expenditure Incurred weighted-average accumulated expenditures Apr-01 9 0.6 25,00,000 1500000 Jul-01 6 0.4 20,00,000 800000 Dec-31 0 0 15,00,000 0 2300000 Ans Part-2:- Cost Amount Months Weighted Avg Cost of 4 year Note Speficaly for Building 10% 10,00,000 9 75000 General Purpose Loan 10.29% 15,00,000 9 115762.5 [8*(15/35) + 12*(20/35)] 10.29% 20,00,000 6 154350 Total 345112.5 Interest 7.669166667 Ans

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