Question

Nash Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,884,000 on March 1, $1,284,000 on June 1, and $3,049,820 on December 31. Nash Company borrowed $1,038,290 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,241,900 note payable and an 11%, 4-year, $3,500,300 note payable. Compute the weighted-average interest rate used for interest capitalization purposes

Answer 1

Answer:

weighted average interest rate 10.61 %

Explanation:

construction capitalized interest  

 

mar-01  1,848,000.00 x 10/12  1,540,000.00

jun-01  1,248,000.00 x 7/12     728,000.00

dic-31  30,198,800.00 x 0           -              

capitalization                     2,268,000.00

 

especific borrowings  

$1,038,290 note at 13% = 134977.7

capitalziation through non-specifit borrowings

2,268,000 - 1,038,290 =  1,229,710.00  

 

average rate  

loan                 rate     interest

2,241,900 10%      224,190

3,500,300 11%      385,033

5,742,200 609,223

average rate: 609,223/5,742,200 = 0.106095747

 

capitalized from non-specific:

1,229,710 x 10.61% =   130,467.00  

 

total interest capitalized =

134,977.7 + 130,467 =   265,444.70