Sage Furniture Company started construction of a combination office and warehous

Question

Sage Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,035,100 on January 1, 2017. Sage expected to complete the building by December 31, 2017. Sage has the following debt obligations outstanding during the construction period. Construction loan-10% interest, payable semiannually, issued December 31, 2016 Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018 Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021 997,900 $2,016,600 1,589,000 Assume that Sage completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,203,700, and the weighted-average amount of accumulated expenditures was $3,826,900. 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 s LINK TO TEXT Compute the depreciation expense for the year ended December 31, 2018. Sage 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 $302,400. (Round answer to O decimal places, e.g. 5,275.) Depreciation Expense

Explanation / Answer

Average interest rate:

Short term loan $1589000 * 8% $127120

Long term loan $997900 * 9% $89811

$2586900 $216931

= $216931/ $2586900

= 8.39%

$2016600 * 10% $201660

$1810300 * 8.39% $151884.17

$3826900 $353544.17

Aviodable interest $353544

Total cost = $5203700 + $353544

= $5557244

Depreciation = $5557244 - $302400 / 30 years

= $175161.

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