Question

Vaughn Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,088,000 on March 1, $1,236,000 on June 1, and $3,090,260 on December 31. Vaughn Company borrowed $1,083,960 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 9%, 5-year, $2,493,000 note payable and an 10%, 4-year, $3,319,800 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.

Answer 1

9.57 %

Step-by-step explanation:

The computation of the weighted-average interest rate used for interest capitalization purposes is shown below:

Particulars Loan Amount Interest

9 % 5 year note payable $2,493,000 ($2,493,000 × 9 %) = $224,370

10 % 4 year note payable $3,319,800 ($3,319,800 × 10 %) = $331,980

Total $5,812,800 $556,350

Now

Weighted- average interest rate is

= $556,350 ÷ $5,812,800

= 9.57 %