Hanson Company is constructing a building. Construction began on February 1 and

Question

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,308,000 on June 1, and $3,015,000 on December 31. Hanson Company borrowed $1,027,300 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 9%, 5-year, $2,312,500 note payable and an 10%, 4-year, $3,786,100 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.

Explanation / Answer

Weighted average interest rate =586735/6098600=9.62%

Amount annual interest rate annual interest cost Borrowing 2312500 9% 208125 Borrowing 3786100 10% 378610 Total 6098600 9.62% 586735

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