In June of 2020, Outboard Hi-Tech Company began to construct a manufacturing plant at a total cost of $5,600,000. The weighted average of accumulated expenditures during construction totaled $3,775,000. The construction took exactly 12 months from start to completion.
The company had the following loans outstanding during the
12-month construction period.
1. Construction loan of $3,000,000 to help with the manufacturing plants construction relatedcosts. Interest rate of 5.5% with interest payable monthly.
2. Working Capital Loan $700,000. Interest rate of 5% payable monthly; full balance of $700,000 to be paid off in 2024.
3. Line of Credit outstanding in the amount of$400,000. Interest rate of 6% payable monthly. Line of credit to be renewed and/or paid off in 2023.
Instructions show all of your work in doing the following:
1. Compute the amount of Avoidable Interest.
2. When the building is completed, what will be the total cost recorded on the companys books? Note: you do NOT need to do a journalentry, just calculate the total cost of the building that will be reported on the companys books.
