Question

Brief Exercise 10-3 Cullumber 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. Cullumber 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. (Round answer to 2 decimal places, e.g. 7.58%.) Weighted-average interest rate %

Answer 1

Step-by-step explanation:

Interest capitalization is the sum of unpaid interest and the principal amount of a loan . Please note that interest are capitalized on outstanding note payable.

Workings

Outstanding note payable

Amount Interest

10% 5 - year note payable - 2,241,900 224,190

11% 4 year note payable - 3,500,300 385,033

Total 5,742,200 609,223

Weighted average interest rate = 609,223/5742200*100= 10.61%