Question 3: (1, 2, 2 points) On December 31, 2009, Hurston Inc. borrowed $1,000,000 at 12% payable annually to finance the construction of a new building. In 2010, the company made the following expenditures related to this building: March 1st, $360,000; July 1st, $1,600,000; December 1st, $1,200,000. Additional information is provided as follows. Other debt outstanding 10-year, 12% bond, December 31, 2003, interest payable annually $2,000,000 6-year, 10% note, dated December 31, 2007, interest payable annually $4,000,000 What is the weighted average accumulated expenditure

Answer

A. Weighted Average Accumulated Expenditure $750,000

B. Avoidable interest $90,000

Actual Interest $760,000

Explanation:

A.Computation of Weighted-Average Accumulated ExpendituresDateAmount×CapitalizationPeriod=Weighted-AverageAccumulated Expenditures

March 1$360,000 10/12 $300,000

June 1,600,000 7/12 $350,000

December 1 1,200,000 1/12 100,000

$3,160,000 $ 750,000

Computation of Avoidable Interest Weighted-×Interest Rate=Avoidable Interest

$750,000 × 0.12 (Construction loan) $90,000

Computation of Actual Interest

Actual Interest:

$1,000,000 × 12% $120,000

$2,000,000 × 12% 240,000

$4,000,000 × 10% 400,000

Total $760,000

d. the economy will face inflation.

2b2t

explanation:

2b2t