Question

Question 3 Headland Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $9,500,000 on January 1, 2020. Headland expected to complete the building by December 31, 2020. Headland has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 $3,800,000 2,660,000 1,900,000 Assume that Headland completed the office and warehouse building on December 31, 2020, as planned at a total cost of $9,880,000, and the weighted average amount of accumulated expenditures was $6,840,000. 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 O decimal places, e.g. 5,275.) Avoidable Interest LINK TO TEXT Compute the depreciation expense for the year ended December 31, 2021. Headland 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 $570,000. (Round answer to O decimal places, e.g. 5,275.) Depreciation Expense Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer a. Avoidable ineterest = $ 772,768 Calculation of Actual Interest Interest Rate Short Term Loan Long Term Loan Total Debt $ 2,660,000 $ 1,900,000 $ 4,560,000 Actual Interest 10% $ 266,000 11% $ 209,000 475,000 Weighted Average General Debt Interest Rate = (475000 / 456000) = 10.42% Calculation of Avoidable Interest Accumulated Expenditures 3,800,000 6840000 -3800000 =3040,000 6,840,000 Interest Rate Avoidable Interest 12.00% $ 456,000 10.42% $ 316,768 772,768 Answer b. depreciation expense = 336,092 Total Cost of Building = Total Cost of Building = Salvage value = Depreciation Expense - 2018 = Depreciation Expense - 2018 = Depreciation Expense - 2018 = $9,880,000+ 772768 $ 10,652,768 $ 570,000 (10652768 - 570000) / 30 Years $ 10,082,768 / 30 $ 336,092