Question

Metlock Industries Inc. started construction of a manufacturing facility for its own use at an estimated cost of $8,000,000 on January 1, 2017. Metlock expected to complete the building by December 31, 2017. Metlock’s debt, all of which was outstanding during the construction period, was as follows.

Answer 1

Answer:

$604,160

Explanation:

Note: The full question is attached as picture below

Weighted average interest rate on general borrowings = 10%* $1,200,000 /$4,000,000 + 12%* $2,800,000 / $4,000,000

Weighted average interest rate on general borrowings = 11.40%

Avoidable interest = ($4,000,000*11%) + ($5,440,000 - $4,000,000) * 11.40%

Avoidable interest = $440,000 + $164,160

Avoidable interest = $604,160