Ask Question
11 August, 19:00

Blue Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $11,000,000 on January 1, 2020. Blue expected to complete the building by December 31, 2020. Blue has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $4,400,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,080,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,200,000

+5
Answers (1)
  1. 11 August, 19:25
    0
    The company will first determinate the capitalize expenditures.

    Then, subtrac the specifit borrowing

    and use a weighted average rate of 10.42% for the amount of capitalized expenditures above the especific borrowings.

    Adding the specfit borowing interest and the interest from the average rate we will get the avoidable interest.

    Explanation:

    The company will avoind interest for the amount of specific borrowing:

    especific borrowings

    $4,400,000 at 12% annual rate 528,000.00

    And then, calculate the average rate of their outstanding debt

    average rate

    principal rate interest

    3,080,000 0.1 308000

    2,200,000 0.11 242000

    5,280,000 550000

    total interest / total principal 0.104166667

    and use that rate for the amount of capitalized expenditures above the especific borrowings.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Blue Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers