Practice Exercise 10-3 Tamarisk Industries Inc. started construction of a manufa

Question

Practice Exercise 10-3 Tamarisk Industries Inc. started construction of a manufacturing facility for its own use at an estimated cost of $9,000,000 on January 1, 2017. Tamarisk expected to complete the building by December 31, 2017. Tamarisk's debt, all of which was outstanding during the construction period, was as follows. . Construction loan-11.00% interest, payable semiannually, issued December 31, 2016; $4,500,000 · Long-term loan #1-10.00% interest, payable on January 1 of each year. Principal payable on January 1 , 2019;$1,350,000 · Long-term loan #2-12.00% interest, payable on December 31 of each year. Principal payable on December 31, 2025; $3,150,000 Assume that Tamarisk completed the facility on December 31, 2017, at a total cost of $9,270,000, and the weighted-average amount of accumulated expenditures was $6,120,000. Compute the avoidable interest on this project. Use interest rates rounded to 2 decima places, e 9-7.58% and round fina ans er dec ma Places, e g S Avoidable Interest s Compute the depreciation expense for the year ended December 31, 2018. Tamarisk estimated the facility's useful life to be 25 years with a salvage value of $900,000. Tamarisk elected to depreciate the facility on a straight-line basis Depreciation Expense

Explanation / Answer

Answer 1. Weighted Average Interest Rate Computation: Principal   Interest Rate Interest Long Term Loan # 1          1,350,000 10%          135,000 Long Term Loan # 2          3,150,000 12%          378,000 Total          4,500,000          513,000 Weighted Average Interest Rate = $513,000 / $4,500,000 Weighted Average Interest Rate = 11.40% Calculation of Avoidable Interest: Weighted-Average Accumulated Expenditures Interest Rate Avoidable Interest                         4,500,000 11%             495,000                         1,620,000 11.40%             184,680                         6,120,000             679,680 Avoidable Interest = $679,680 Answer b. Amount Interest Rate Actual Interest Construction Loan          4,500,000 11%          495,000 Long Term Loan # 1          1,350,000 10%          135,000 Long Term Loan # 2          3,150,000 12%          378,000 Total Interest      1,008,000 Since, Avoidable Interest ($679,680)

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.