Sunland Furniture Company started construction of a combination office and wareh

Question

Sunland Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,950,000 on January 1, 2017. Sunland expected to complete the building by December 31, 2017. Sunland has the following debt obligations outstanding during the construction period.

993,800

Assume that Sunland completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,211,800, and the weighted-average amount of accumulated expenditures was $3,768,500. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)

Avoidable Interest $_______________?

Compute the depreciation expense for the year ended December 31, 2018. Sunland elected to depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 years and a salvage value of $299,800. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation Expense $____________________?

Construction loan-10% interest, payable semiannually, issued December 31, 2016 $1,989,400 Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018 1,591,100 Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021

993,800

Explanation / Answer

1) Weighted Average Rate for Non-specific Loans :-

Weighted Average Rate = $216730 / $2584900 = 8.38%

Calculation of Avoidable Interest :-

2) Depreciation Expense :-

= (Cost - Salvage Value) / Life of the Asset

= (Capitalized Cost - $299800) / 30 years

= ((Total Planned Cost + Avoidable Interest) - $299800) / 30

= (($5211800 + $348029) - $299800) / 30

= ($5559829 - $299800) / 30

= $5260029 / 30

= $175334

Particulars Amount($) Rate Interest Short Term Loan $1591100 8% $127288 Long Term Loan $993800 9% $89442 Total $2584900 $216730

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