Question

Wildhorse Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,200 on January 1, 2017. Wildhorse expected to complete the building by December 31, 2017. Wildhorse has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2016 $2,007,800 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2018 1,588,200 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2021 990,600

Assume that Wildhorse completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,167,500, and the weighted-average amount of accumulated expenditures was $3,836,900. 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 $ LINK TO TEXT

Compute the depreciation expense for the year ended December 31, 2018. Wildhorse 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 $297,700. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense $

Answer 1

Calculation of avoidable Interest

Amount Rate Avoidable Interest

Construction Loan 2007800 12% 240936

Other loan 1829100 10.38% 189861

Total Expenditure 3836900 Total Avoidable Interest 430797

Therefore Interest to be Capitalised = 430797

Total Value of Asset = 5167500+430797

= 5598297

Depreciation = (Asset Value - Salvage Value)/Usefull Life

= $ 176687

Working Notes:

1. Calculation Of Weighted Average Interest Rate

Amount Rate Interest

Short Term Loan 1588200 10% 158820

Long Term Loan 990600 11% 108966

2578800 267786

Weighted Average Interest Rate = 267786/ 2578800 * 100

= 10.38%