Exercise 10-7 - (b) Actual Interest Construction loan...

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EXERCISE 10-7 (20–25 minutes) (a) Avoidable Interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest $2,000,000 12% $240,000 1,600,000 10.42% 166,720 $3,600,000 $406,720 Weighted-average interest rate computation Principal Interest 10% short-term loan $1,400,000 $140,000 11% long-term loan 1,000,000 110,000 $2,400,000 $250,000 Total Interest $250,000 Total Principal =$2,400,000 = 10.42%
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Unformatted text preview: (b) Actual Interest Construction loan $2,000,000 X 12% = $240,000 Short-term loan $1,400,000 X 10% = 140,000 Long-term loan $1,000,000 X 11% = 110,000 Total $490,000 Because avoidable interest is lower than actual interest, use avoidable interest. Cost $5,200,000 Interest capitalized 406,720 Total cost $5,606,720 Depreciation Expense = $5,606,720 $300,000 30 years = $176,891...
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Exercise 10-7 - (b) Actual Interest Construction loan...

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