On October 1, 2012 Flat Tire Brewery Co. began construction of a new brewery. The following expenditures were incurred for construction:
Oct. 1, 2012 $50,000 Nov. 1, 2012 680,000 Dec. 31, 2012 500,000 Feb. 1, 2013 600,000 Mar. 31, 2013 700,000
The building was completed and occupied on March 31, 2013, the last day of Flat Tire’s fiscal year. To help pay for construction $1,000,000 was borrowed on Sept 30, 2012 with a 10% (per year), nine month construction loan. The only other debt outstanding during the construction period was a ten year, $500,000, 6% (per year) note issued in 2009.
Hint: Because the entire construction period was within the same fiscal year, it is unnecessary to separately calculate 2012 and 2013 construction expenditures.
Instructions
(a) Calculate the weighted-average accumulated expenditures, rounding to the nearest month.
(b) Calculate avoidable interest for the construction period.