Martin Industries, Inc. signed a contract for the construction of their new headquarters building on January...

 

Transcribed Image Text:

Martin Industries, Inc. signed a contract for the construction of their new headquarters building on January 1, 2020, with a total construction cost of $1,200,000. Work on the construction began on that date, and the building was completed on December 31, 2020. Martin paid the contractor a total of $200,000 as the first payment for the construction on January 1, 2020. To help finance the project, Martin signed a two year construction loan note with the local bank, in the amount of $500,000, requiring an annual interest payment of 6%. In addition to the construction loan, Martin had two other liabilities; a long-term note payable in the amount of $300,000 that began in 2018, and required 5% annual interest, and some bonds payable that were issued in 2017, in the amount of $1,000,000, that required annual interest of 8%. In addition to the down payment Martin made to the contractor on January 1, 2020, Martin made the following payments to the contractor during the year: March 1 $500,000 September 1 $300,000 December 1 $200,000 REQUIRED: A) Calculate the weighted-average accumulated expenditure for Martin to use in determining the amount of avoidable interest for 2020. B) Calculate the amount of avoidable interest for 2020. c) Calculate the correct amount of interest expense to be reported on Martin's income statement for 2020. Martin Industries, Inc. signed a contract for the construction of their new headquarters building on January 1, 2020, with a total construction cost of $1,200,000. Work on the construction began on that date, and the building was completed on December 31, 2020. Martin paid the contractor a total of $200,000 as the first payment for the construction on January 1, 2020. To help finance the project, Martin signed a two year construction loan note with the local bank, in the amount of $500,000, requiring an annual interest payment of 6%. In addition to the construction loan, Martin had two other liabilities; a long-term note payable in the amount of $300,000 that began in 2018, and required 5% annual interest, and some bonds payable that were issued in 2017, in the amount of $1,000,000, that required annual interest of 8%. In addition to the down payment Martin made to the contractor on January 1, 2020, Martin made the following payments to the contractor during the year: March 1 $500,000 September 1 $300,000 December 1 $200,000 REQUIRED: A) Calculate the weighted-average accumulated expenditure for Martin to use in determining the amount of avoidable interest for 2020. B) Calculate the amount of avoidable interest for 2020. c) Calculate the correct amount of interest expense to be reported on Martin's income statement for 2020.

Answer rating: 100% (QA)

A To calculate the weightedaverage accumulated expenditure for Martin we need to determine the average amount of expenditures incurred during the cons... View the full answer