Question
Skysong Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $11,000,000 on January 1,
Skysong Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $11,000,000 on January 1, 2020. Skysong expected to complete the building by December 31, 2020. Skysong has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2019 $4,400,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,080,000
Long-term loan-11% interest, payable on January 1 of eachyear. Principal payable on January 1, 2024 2,200,000
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(a)
Assume that Skysong completed the office and warehouse building on December 31, 2020, as planned at a total cost of $11,440,000, and the weighted-average amount of accumulated expenditures was $7,920,000. Compute the avoidable interest on this project. (Use interest rates rounded to 4 decimal places, e.g. 7.5825% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)
Avoidable Interest
$
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