Answer:
b. 10.65%
capitalized interest
d. $704,415
actual interest
a. $1,758,000
interest expense
c. $1,053,585
Explanation:
the average cost of debt for general funds:
4,800,000 x 10% = 480,000
9,000,000 x 11% = 990,000
13,800,000 1,470,000
1,470,000 / 13,800,000 = 10.65%
capitalized fund:
4,800,000 x 10/12= 4,000,000
3,960,000 x 7/12 = 2,310,000
total 6,310,000
specifit borrowing: 2,400,000 x 12% = 288,000
remainder 3910000 x 10.65% = 416,415
capitalized cost 704,415
actual interest:
1,470,000 + 288,000 = 1,758,000
interest expense
1,758,000 - 704,415 = 1,053,585
The weighted-average interest rate used for interest capitalization purposes is d. 10.65%
The avoidable interest for Arlington Company is d. $704,415
What is the actual interest for Arlington Company is a. $1,758,000
The amount of interest should be charged to expense is c. $1,053,585
Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable.
What is the weighted-average interest rate used for interest capitalization purposes?
a. 11%
b. 10.85%
c. 10.5%
d. 10.65%
The weighted average interest rate is the aggregate rate of interest paid on all debt. the average cost of debt for general funds:
[tex]4,800,000 * 10 \%= 480,000\\9,000,000 * 11\% = 990,000\\ 4,800,000+ 9,000,000 = 13,800,000\\ 480,000+ 990,000= 1,470,000[/tex]
[tex]\frac{1,470,000}{13,800,000} = 10.65\%[/tex]
What is the avoidable interest for Arlington Company?
a. $288,000
b. $927,615
c. $328,562
d. $704,415
Avoidable interest is the interest amount that could have been avoided had the project not taken place
[tex]4,800,000 * \frac{10}{12} = 4,000,000\\3,960,000 * \frac{7}{12} = 2,310,000[/tex]
[tex]total =4,000,000+2,310,000= 6,310,000[/tex]
[tex]specifit borrowing: 2,400,000 * 12\% = 288,000\\remainder: 3910000 * 10.65\% = 416,415[/tex]
[tex]capitalized cost = 288,000+ 416,415=704,415[/tex]
What is the actual interest for Arlington Company?
a. $1,758,000
b. $1,782,000
c. $1,470,000
d. $704,415
The actual interest rate is the rate that will discount all of the future cash receipts back to the amount of cash paid to buy the bond
[tex]= ((4,800,000 *10\%)+ (9,000,000 * 11\%))+ specifit borrowing\\ = 1,470,000 + 288,000\\ = 1,758,000[/tex]
What amount of interest should be charged to expense?
a. $765,584
b. $1,470,000
c. $1,053,585
d. $830,384
Interest is the charge for the privilege of borrowing money.
[tex]=actual interest - capitalized cost = \\=1,758,000 - 704,415\\ = 1,053,585[/tex]
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