53.6k views
1 vote
weighted average accumulated expenditures are $720,000 on a project for which work steadily progressed during the current year. the following debt was outstanding during the current year. construction loan $180,000 at 10% note payable $900,000 at 8% mortgage payable $270,000 at 12% a. compute the total actual interest expense for the current year. $answer b. compute the weighted average interest rate on the general debt.

1 Answer

3 votes

Final answer:

The total actual interest expense for the current year is $122,400. The weighted average interest rate on the general debt is 8.067%.

Step-by-step explanation:

Weighted average accumulated expenditures are the sum of the product of each expenditure and its corresponding weight as a percentage of the total expenditures. To calculate the total actual interest expense for the current year, we need to calculate the interest expenses for each type of debt and then sum them together. For the construction loan, the interest expense would be $180,000 × 10% = $18,000. For the note payable, the interest expense would be $900,000 × 8% = $72,000. And for the mortgage payable, the interest expense would be $270,000 × 12% = $32,400. Adding up these interest expenses, the total actual interest expense for the current year would be $18,000 + $72,000 + $32,400 = $122,400.

To compute the weighted average interest rate on the general debt, we need to calculate the weight of each type of debt as a percentage of the total debt and then multiply each interest rate by its corresponding weight. The total debt is $180,000 + $900,000 + $270,000 = $1,350,000. The weight of the construction loan is $180,000 / $1,350,000 = 13.33%, the weight of the note payable is $900,000 / $1,350,000 = 66.67%, and the weight of the mortgage payable is $270,000 / $1,350,000 = 20%. Multiplying each interest rate by its corresponding weight and summing them up, we get (10% × 13.33%) + (8% × 66.67%) + (12% × 20%) = 1.3333% + 5.3336% + 2.4% = 8.067%. Therefore, the weighted average interest rate on the general debt is 8.067%.

User Jasongarber
by
6.6k points