Answer:
a. $842,250
b. $842,250
Explanation:
The computation is shown below:
a. For avoidable interest
<u>Weighted average Interest rate applied avoidable interest</u>
<u>accumulated expenditures
</u>
$5,205,000 10% $520,500
$2,925,000 11% $321,750
Total $842,250
($8,130,000 - $5,205,000)
Working note for interest rate applied
<u>Particulars Principal Interest</u>
12% ten year bond $6,047,000 $725,640
9% 3 year bond $3,023,500 $272,115
total $9,070,500 $997,755
Now the interest rate is
= $997,755 ÷ $9,070,500
= 11%
2. Now the total interest capitalized is
Total interest is
= $520,500 + $725,640 + $272,115
= $1,518,255
And, the total avoidable interest is $842,250
So we considered the lesser amount i.e. $842,250
