Question

Flint Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,920,000 on March 1, $1,200,000 on June 1, and $3,070,300 on December 31. Flint Company borrowed $1,041,900 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, $2,227,300 note payable and an 11%, 4-year, $3,799,000 note payable. Compute avoidable interest for Flint Company. Use the weighted-average interest rate for interest capitalization purposes. g

Answer 1

FLINT COMPANY

Weighted averate interest rate

Amount Interest

13% Note payable $1,041,900 (1,041,900*13%) $135,447

10% Note payable $2,227,300 (2,227,300*10%) 222,730

11% Note payable $3,799,000 (3,799,000*11%*) 417,890

7,068,200 776,067

weighted average interest rate = $776,067/$7,068,200

=10.98%

Interest to capitalized for the year ended Dec 31

March 1 $1,920,000 *10.98%*10/12 = $175,680

June 1 $1,200,000*10.98%*7/12 = 76,860

Dec 31 $3,070,300 *10.98%*0/12 = $0

$252,540

Step-by-step explanation: