Problem 107 Part Level Submission Blue Inc is a book distrib

Problem 10-7 (Part Level Submission) Blue Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Blue since 2012. Blueoriginal facility became obsolete by early 2017 because of the increased sales volume and the fact that Blue now carries CDs in addition to books. owned b blue·THe payments mal e schedule On June 1 2017, Blue contracted with Black Construction to have a new building constructed or S5 120 000 on an below le veto c Co s ructionanes o m n Date Amount July 30, 2017 anuary 30, 2018 May 30, 2018 $1,152,000 1,920,000 Total payments $5,120,000 Construction was completed and the building was ready for occupancy on May 27, 2018. Blue had no new borrowings directly associated with the new building but had the following debt outstanding at May 31 2018, the end of its fiscal year. 10%, 5-year note payable of $2,560,000, dated April 1, 2014, with interest payable annually on April 1 12%, 10-year bond issue of $3,840,000 sold at par on June 30, 2010, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material Your answer is correct. Compute the weighted-average accumulated expenditures on Blue\'s new building during the capitalization period Weighted-Average Accumulated Expenditures Click if you would like to Show Work for this question: Open Show Work 1600000

Solution

Solution b:

Weighted average interest rate to be used for interest capitalzation purpose = 10% * 2,560,000/$6,400,000 + 12% * 3,840,000 / 6,400,000 = 11.20%

Avoidable interest = Weighted average accumulated expenditure * Weighted average interest rate

= $1,600,000 * 11.20% = $179,200