On January 1, 2020, Simple Plan Inc. borrowed P4,000,000 at an interest rate of 10% specifically for the construction of its new building. Interest earned from the temporary investment of the proceeds of the loan prior to their disbursement amounted to P50,000. Simple Plan had also the following other loans in 2020 which were borrowed for general purposes. The proceeds of these loans were used in part for the construction of the building.

Principal Borrowing Cost

10% short-term note P3,000,000 P300,000

12% long-term loan 4,000,000 480,000

P7,000,000 P780,000

The construction began January 1,2020 and the building was completed on December 31,2020. Expenditures on the building were made as follows:

January 1 P1,000,000

March 31 2,500,000

June 30 3,000,000

September 30 2,500,000

December 31 1,000,000

P10,000,000

Required: Based on the result of your audit, determine the following:

1. Average Expenditures

A. 7,000,000

B. 6,000,000

C. 5,000,000

D. 4,000,000

2. Capitalizable interest rate

A. 10%

B. 11%

C. 12%

D. 13%

3. Avoidable interest

A. 780,000

B. 1,180,000

C. 350,000

D. 460,000

4. Capitalizable borrowing cost

A. 780,000

B. 110,000

C. 350,000

D. 460,000

5. Total Cost of Building

A. 10,460,000

B. 10,350,000

C. 10,110,000

D. 10,780,000