On March 1, Mocl Co. began construction of a small building. The following expen

Question

On March 1, Mocl Co. began construction of a small building. The following expenditures were incurred for construction: March 1 April 1 May 1 June 1 July 1 $224,280 221,880 537,720 816,360 302,880 The building was completed and occupied on July 1 . To help pay for construction $141,120 was borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the year was a $1,500,000, 10% note issued two years ago. Calculate the weighted-average accumulated expenditures. (Do not leave any answer field blank. Enter 0 for amounts.) Weighted-Average Date Expenditures Capitalization Period Accumulated Expenditure $224,280 221,880 537,720 816,360 302,880 March1 April 1 May 1 June 1 July 1

Explanation / Answer

(a) Computation of weighted-average accumulated expenditures.We have,

(b) Computation of avoidable interest.We have,

Specific Debt = 141,120 x 12 % = $ 16,934

General Debt = 1,500,000 x 10 % = $ 150,000

Total annual interest expenses = ( 16,934 + 150,000) = $ 166,934

Date Expenditures Capitalization period Weighted-average accumulated expenditure March 1 $ 224,280 4/4 $ 224,280 April 1 221,880 3/4 166,410 May 1 537,720 2/4 268,860 June 1 816,360 1/4 204,090 July 1 302,880 0/4 0 Total weighted-average accumulated expenditures $ 863,640

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