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Flint Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,920,000 on March 1, $1,200,000 on June 1, and $3,070,300 on December 31. Flint Company borrowed $1,041,900 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, $2,227,300 note payable and an 11%, 4-year, $3,799,000 note payable. Compute avoidable interest for Flint Company. Use the weighted-average interest rate for interest capitalization purposes. g

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Answer:

FLINT COMPANY

Weighted averate interest rate

                                            Amount                                              Interest

13% Note payable         $1,041,900          (1,041,900*13%)           $135,447

10% Note payable         $2,227,300        (2,227,300*10%)            222,730

11% Note payable          $3,799,000        (3,799,000*11%*)            417,890

                                       7,068,200                                                 776,067

weighted average interest rate =   $776,067/$7,068,200

                                                  =10.98%

Interest to capitalized for the year ended Dec 31

March 1             $1,920,000 *10.98%*10/12 =    $175,680

June 1                $1,200,000*10.98%*7/12 =         76,860

Dec 31               $3,070,300 *10.98%*0/12  =          $0

                                                                          $252,540

Explanation: