Problem - McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2012. McPherson expected to complete the building by December 31, 2012. McPherson has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2011 $2,000,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2013 1,600,000
Long-term loan-11% interest, payable on January 1 of each year; principal payable on January 1, 2016 1,000,000
Assume that McPherson completed the office and warehouse building on December 31, 2012, as planned at a total cost of $5,200,000, and the weighted average of accumulated expenditures was $3,800,000. Compute the avoidable interest on this project.