ed construction of a combination office and warehouse building for its own use at an estimated cost of €5,800,000 on January 1, 2019. Safeer expected to complete the building by December 31, 2019. Safeer has the following debt obligations outstanding during the construction period. Construction loan – 12% interest, payable semiannually, issued December
ed construction of a combination office and warehouse building for its own use at an estimated cost of €5,800,000 on January 1, 2019. Safeer expected to complete the building by December 31, 2019. Safeer has the following debt obligations outstanding during the construction period. Construction loan – 12% interest, payable semiannually, issued December
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Safeer Furniture started construction of a combination office and warehouse building for its own use at an estimated cost of €5,800,000 on January 1, 2019. Safeer expected to complete the building by December 31, 2019. Safeer has the following debt obligations outstanding during the construction period.
Construction loan – 12% interest, payable semiannually,
issued December 31, 2018 €2,500,000
Short-term loan – 10% interest, payable monthly,
and principal payable at maturity on May 30, 2020 1,750,000
Long-term loan – 11% interest, payable on January 1
of each year. Principal payable on January 1, 2023 1,150,000
Instructions: Assume that Safeer completed the office and warehouse building on December 31, 2019, as planned at a total cost of €6,000,000, and the weighted-average accumulated expenditures was €4,400,000. Compute the avoidable interest on this project.
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