Question

Sheridan Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,972,800 on January 1, 2017. Sheridan expected to complete the building by December 31, 2017. Sheridan has the following debt obligations outstanding during the construction period.

Construction loan-10% interest, payable semiannually, issued December 31, 2016		$2,019,500
Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018		1,605,600
Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021		1,001,000

Compute the depreciation expense for the year ended December 31, 2018. Sheridan 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 $302,700. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation Expense

$

Answer 1

		CAPITALIZATION OF INTEREST :
	A	Accumulated expenditure in beginning 2017	$0
	B	Accumulated expenditure at end 2017	$4,972,800
	C=(A+B)/2	Average accumulated expenditure	$2,486,400
	D	Construction Loan	$2,019,500
	E=C-D	Other Loan	$466,900
	F	Interest on construction loan=10%*2019500	$201,950
		OTHER LOANS
			Loan amount	Percent	Annual Interest
		Short Term loan	$1,605,600	8%	$128,448
		Long termloan	$1,001,000	9%	$90,090
		TOTAL	$2,606,600	8.38%	$218,538
		Weighted average interest rate=218538/2606600	8.38%
		Interest Cost tobe capitalized<
			Borrowing amount	Interest rate	Interest cost
		Construction Loan	$2,019,500	10%	$201,950
		Other borrowing	$466,900	8.38%	$39,145
				Total	$241,095
		Asset to be depreciated :
		Accumulated expenditure at end 2017	$4,972,800
		Capitalized Interest	$241,095
	G	Total capitalized asset	$5,213,895
	H	Salvage Value	$302,700
	I	Useful Life in years	30
		AnnualDepreciation =(Capitalized asset-Salvage Value)/(Usefullife)
	J=(G-H)/I	Depreciation expense	$163,707
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