Teal Mountain Industries Inc. started construction of a manufacturing facility for its own use at an estimated cost of $9,200,000 on January 1, 2017. Teal Mountain expected to complete the building by December 31, 2017. Teal Mountain’s debt, all of which was outstanding during the construction period, was as follows. ● Construction loan—11% interest, payable semiannually, issued December 31, 2016; $4,600,000 ● Long-term loan #1 – 10% interest, payable on January 1 of each year. Principal payable on January 1, 2019; $1,380,000 ● Long-term loan #2—12% interest, payable on December 31 of each year. Principal payable on December 31, 2025; $3,220,000 Assume that Teal Mountain completed the facility on December 31, 2017, at a total cost of $9,476,000, and the weighted-average amount of accumulated expenditures was $6,256,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% and round final answer to 0 decimal places, e.g. 5,275.
Teal Mountain Industries Inc. started construction of a manufacturing facility for its own use at an estimated cost of $9,200,000 on January 1, 2017. Teal Mountain expected to complete the building by December 31, 2017. Teal Mountain’s debt, all of which was outstanding during the construction period, was as follows. ● Construction loan—11% interest, payable semiannually, issued December 31, 2016; $4,600,000 ● Long-term loan #1 – 10% interest, payable on January 1 of each year. Principal payable on January 1, 2019; $1,380,000 ● Long-term loan #2—12% interest, payable on December 31 of each year. Principal payable on December 31, 2025; $3,220,000 Assume that Teal Mountain completed the facility on December 31, 2017, at a total cost of $9,476,000, and the weighted-average amount of accumulated expenditures was $6,256,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% and round final answer to 0 decimal places, e.g. 5,275.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Teal Mountain Industries Inc. started construction of a manufacturing facility for its own use at an estimated cost of $9,200,000 on January 1, 2017. Teal Mountain expected to complete the building by December 31, 2017. Teal Mountain’s debt, all of which was outstanding during the construction period, was as follows.
| ● | Construction loan—11% interest, payable semiannually, issued December 31, 2016; $4,600,000 | ||
| ● | Long-term loan #1 – 10% interest, payable on January 1 of each year. Principal payable on January 1, 2019; $1,380,000 | ||
| ● | Long-term loan #2—12% interest, payable on December 31 of each year. Principal payable on December 31, 2025; $3,220,000 |
Assume that Teal Mountain completed the facility on December 31, 2017, at a total cost of $9,476,000, and the weighted-average amount of accumulated expenditures was $6,256,000.
Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% and round final answer to 0 decimal places, e.g. 5,275.
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