Nash Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,884,000 on March 1, $1,284,000 on June 1, and $3,049,820 on December 31. Nash Company borrowed $1,038,290 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 10%, 5-year, $2,241,900 note payable and an 11%, 4-year, $3,500,300 note payable. Compute the weighted-average interest rate used for interest capitalization purposes

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TomShelby TomShelby · Answer 1 · 2019-12-13T03:57:35+01:00

Answer:

weighted average interest rate 10.61 %

Explanation:

construction capitalized interest

mar-01 1,848,000.00 x 10/12 1,540,000.00

jun-01 1,248,000.00 x 7/12 728,000.00

dic-31 30,198,800.00 x 0 -

capitalization 2,268,000.00

especific borrowings

$1,038,290 note at 13% = 134977.7

capitalziation through non-specifit borrowings

2,268,000 - 1,038,290 = 1,229,710.00

average rate

loan rate interest

2,241,900 10% 224,190

3,500,300 11% 385,033

5,742,200 609,223

average rate: 609,223/5,742,200 = 0.106095747

capitalized from non-specific:

1,229,710 x 10.61% = 130,467.00

total interest capitalized =

134,977.7 + 130,467 = 265,444.70