#2 (1 pt.) On November 1, 2013, Shalla Company contracted Pfeifer Construction C
ID: 2530654 • Letter: #
Question
#2 (1 pt.) On November 1, 2013, Shalla Company contracted Pfeifer Construction Co. to construct a building for $1,500,000. Shalla made the following payments to the construction company during 2014.
Jan 1 --> $500,000
April 1 --> $800,000
May 31 --> $400,000
August 1 --> $400,000
December 31 --> $120,000
Pfeifer Construction completed the building, ready for occupancy, on December 31, 2014. Shalla had the following debt outstanding at December 31, 2014.
Specific Construction Debt
1. 12%, 3-year note to finance purchase of land and construction of the building, dated December 31, 2013, with interest payable annually on December 31: $1,500,000
Other Debit:
2. 10%, 5-year notes payable, dated December 31, 2010, with interest payable annually on December 31: $800,000
3. 13%, 10-year bonds issued December 31, 2009, with interest payable annually on December 31: $600,000
a. Compute the weighted average accumulated expenditures for 2014
Jan .1 --> Amount, Fraction of year, Weighted Average expenditure ?
Apr. 1 --> Amount, Fraction of year, Weighted Average expenditure ?
May 31 --> Amount, Fraction of year, Weighted Average expenditure ?
Aug. 1 --> Amount, Fraction of year, Weighted Average expenditure ?
Dec. 31 --> Amount, Fraction of year, Weighted Average expenditure ?
Totals: Weighted Average total ?
b. Avoidable Interest:
Weighted Average expenditure, Interest rate, Avoidable interest
Weighted Average expenditure, Interest rate, Avoidable interest
Totals = Avoidable Interest?
c. Weighted Ave. Interest for Other Debt
Debt Amount, Interest Rate, Interest Amount
Debt Amount, Interest Rate, Interest Amount
Totals:
Weighted Average. Interest: (Totals interest amount/ total debt amount)
Explanation / Answer
a) Calculation of Weighted Average Accumulated Expenditure (Amts in $)
b) Avoidable Interest = Weighted Average Accumulated Exp*Interest Rate on special loan
= $1,500,000*12% = $180,000
c) Interest on Notes Payable = $800,000*10% = $80,000
Interest on bonds = $600,000*13% = $78,000
Total Interest Amount = $80,000+$78,000 = $158,000
Total Debt Amount = $800,000+$600,000 = $1,400,000
Weighted Average Interest Rate = Total Interest Amount/Total Debt Amount
= $158,000/$1,400,000 = 11.29%
Date Amount (A) Fraction of year (B) Weighted Average Expenditure (A*B) Jan 1 500,000 12/12 500,000 April 1 800,000 9/12 600,000 May 31 400,000 7/12 233,333 August 1 400,000 5/12 166,667 Dec. 31 120,000 0/12 0 Total 1,500,000Related Questions
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