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 $1,908,000 on March 1, $1,248,000 on June 1, and $3,070,100 on December 31.

Hanson Company borrowed $1,138,100 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, $2,226,600 note payable and an 10%, 4-year, $3,664,400 note payable. Compute avoidable interest for Hanson Company. Use the weighted-average interest rate for interest capitalization purposes. (Round percentages to 2 decimal places, e.g. 2.50% and final answer to 0 decimal places, e.g. 5,275.)

Explanation / Answer

$1908000 * 10/12 = $1590000
$1248000 * 7/12 = $728000
$3070100 * 0 = 0
TOTAL $2318000

PRINCIPAL: $2226600 + $3664400 = $5891000
INTEREST : ($2226600 * 9%) + ($3664400 * 10%) = $566834

INTEREST %
= $566834 / $5891000 = 9.62%

$1138100 * 13% = $147953
## $1179900 * 9.62% = $113506
AVOIDABLE INTEREST: $261459

##($2318000 - $1138100 = $1179900)

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