On 11/1/Year 1, Armenti, Inc., planned to begin production on a yacht for sale to a customer in Canada. Due to backordered supplies, Armenti was unable to start construction on the yacht until 1/1/Year 2. On that date, Armenti borrowed $600,000 specifically to finance construction of the yacht. It was borrowed at a rate of 9.5%. Due to financial difficulty, Armenti also had other debt outstanding between 1/1/Year 2 and 12/31/Year 2. The other debt was 400 $1,000 bonds bearing 5% interest, 100 $1,000 bonds bearing 4% interest, and 700 $1,000 bonds bearing 6% interest. Construction was completed on 5/1/Year 3.

The construction-related expenditures for Year 2 are as follows:
1/1/Year 2: $200,000
3/1/Year 2: $300,000
4/1/Year 2: $350,000
7/1/Year 2: $200,000
10/1/Year 2: $500,000
12/1/Year 2: $300,000

Enter the weighted-average rate as a percentage. For example, if the rate is 1%, enter 1.

Question	Answer
1. What is the weighted average accumulated expenditures (AAE) for the construction period in Year 2?
2. What is the actual amount of interest incurred during the construction period in Year 2?
3. What is the weighted-average rate on Armenti's borrowings, not including the construction loan in Year 2?
4. What is the amount of avoidable interest in Year 2?
5. What amount of interest should be capitalized in Year 2?
6. What amount of interest should be expensed in Year 2?

Answer rating: 100% (QA)

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