Question

On July 31, 2020, Flounder Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction began immediately and was completed on November 1, 2020. To help finance construction, on July 31 Flounder issued a $328,800, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $232,800 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Flounder made a final $96,000 payment to Minsk. Other than the note to the Netherlands, Flounder’s only outstanding liability at December 31, 2020, is a $28,600, 8%, 6-year note payable, dated January 1, 2017, on which interest is payable each December 31.
Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2020.

Answer 1

Answer:

Explanation:

Interest Revenue Principle Interest A. 12% 3 year note payable $200,000 $ 24,000 B. 10% 1 year note payable $100,000$ 10,000C. 08% 6 year note payable $ 30,000 $ 24,000 $330,000 $58,000

Weighted Average Interest Rate = Total Interest /Total Principle $58,000 / $330,000 =.1757Weighted

Accumulated Expenditures Expenditures Capitalization Weighted Avg.x Period = Accumulated Expenditures Date Amount July 31, 2020 $200,000 3/12 $ 75,000 November 1, 2020 $100,000 1/12 $ 83,000December 31, 2020 $ 30,000 6/12 $ 15,000$330,000$173,000Avoidable Interest

Weighted Average Accumulated Expendituresx Interest Rate = Avoidable Interest$300,000 .12 $36,000$127,000.1757