In June of 2020, C-tech Company began to construct a manufacturing plant at a total cost of
Question:
In June of 2020, C-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 plant’s construction related costs. 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.
Please show all of your work:
1. Compute the amount of avoidable interest.
2. When the building is completed, what will be the total cost recorded on the company’s books? Please calculate the total cost of the building that will be reported on the company’s books.
