Question

Blossom Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $11,000,000 on January 1, 2020. Blossom expected to complete the building by December 31, 2020. Blossom has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $4,400,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,080,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,200,000Assume that Headland completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,197,700, and the weighted-average amount of accumulated expenditures was $3,781,600. 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. 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 $298,200. (Round answer to 0 decimal places, e.g. 5,275.)Depreciation Expense $

Answer 1

Answer:

weighted average rate: 11.14%

capitalize interest (avoidable interest) 421,270.24‬ dollars

Explanation:

construction related loan:

4,400,000 12%  =     528,000

general use:

3,080,000 10%  =    308,000

2,200,000 11%  =    242,000

9,680,000  1,078,000

weighted-average rate: 1,078,000 / 9,680,000 = 0.111363636 = 11.14%

capitalize interest:

weighted-average amount of accumulated expenditures x w/a rate:

3,781,600 x 11.14% = 421,270.24‬