Pharoah company is constructing a building. construction began on february 1 and was completed on december 31. expenditures were $1,848,000 on march 1, $1,248,000 on june 1, and $3,019,800 on december 31.

pharoah company borrowed $1,112,400 on march 1 on a 5-year, 13% note to finance construction of the building. in addition, the company had outstanding all year a 10%, 5-year, $2,326,800 note payable and an 11%, 4-year, $3,400,300 note payable. compute avoidable interest for pharoah company. use the weighted-average interest rate for interest capitalization purposes. (round percentages to 2 decimal places, e. g. 2.51% and final answer to 0 decimal places, e. g. 5,275.)

avoidable interest 247439

hello i have posted the same qouestion since 2 hrs and it have been answered wrong, am so confused now. could anyone give me an accurate answer?

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entry field with incorrect answer

Total avoidable interest

144,612 from specifit purpose + 131,249.14 other source = 263,810.14

Explanation:

First, we get the total capitalization which is an average of the expenditures considering their date

CONSTRUCTION INTERET CAPITALIZATION

Dateoutlayweightsubtotal

March 1  1,948,000.00   0.83   1,623,333.33  

June 1  1,248,000.00   0.58   728,000.00  

Dec 31  3,019,800.00      -            -    

Total Capitalization            2,351,333.33  

now we apply the principal and rate for specifit use:

Specifit use to finance: 1,112,400

at 13% = 144,612  

Finance trought other debts:

2,351,333.33 - 1,112,400 = 1,238,933.33  

Now, we solve for the average rate of the other liabilities outstanding

average rate:

PRINCIPAL                      INTEREST

2,326,800at 10%232680  

3,400,300 at 11%      374033  

5,727,100             606713  

Average rate: 606,713  / 5,727,100 = 0.105937211

And finally, we apply it to our remaining capitalization    

Capitalized interest: 1,238,933.33 x 0.105937211 = 131,249.14  

Total avoidable interest will be the sum of both concepts

144,612 + 131,249.14 = 263,810.14