Sage 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. Sage expected to complete the building by December 31, 2020. Sage has the following debt obligations outstanding during the construction period.
Assume that Sage completed the office and warehouse building on December 31, 2020, as planned at a total cost of $11,440,000, and the weighted-average amount of accumulated expenditures was $7,920,000. 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 0 decimal places, e.g. 5,275.)
eTextbook and Media Compute the depreciation expense for the year ended December 31, 2021. 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 $660,000. (Round answer to 0 decimal places, e.g. 5,275.)
|
||||||||||||||||
Solution :
(a) |
Avoidable Interest |
||||
Weighted-Average |
|||||
Accumulated Expenditures |
X |
Interest Rate |
= |
Avoidable Interest |
|
$4,400,000 |
12% |
$528,000 |
|||
3,520,000 |
10.42% |
366,784 |
|||
$7,920,000 |
$894,784 |
Weighted-average interest rate computation |
Principal |
Interest |
||
10% short-term loan |
$30,80,000 |
$308,000 |
||
11% long-term loan |
22,00,000 |
242,000 |
||
$5,280,000 |
$550,000 |
Total Interest |
= |
$550,000 |
= 10.42% |
Total Principal |
$5,280,000 |
(b) |
Actual Interest |
||
Construction loan |
$4,400,000 X 12% = |
$528,000 |
|
Short-term loan |
$3,080,000 X 10% = |
308,000 |
|
Long-term loan |
$2,200,000 X 11% = |
242,000 |
|
Total |
$1,078,000 |
Because avoidable interest is lower than actual interest, use avoidable interest. |
|||
Cost |
$11,440,000 |
||
Interest capitalized |
894,784 |
||
Total cost |
$12,334,784 |
Depreciation Expense |
= |
$12,334,784 – $660,000 |
= $389,159 |
30 years |
Sage Furniture Company started construction of a combination office and warehouse building for its own use...
Stellar 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. Stellar expected to complete the building by December 31, 2020. Stellar has the following debt obligations outstanding during the construction period. $4,400,000 Construction loan-12% interest, payable semiannually, issued December 31, 2019 3,080,000 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...
Oriole 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. Oriole expected to complete the building by December 31, 2020. Oriole 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....
Carla Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $6,000,000 on January 1, 2020. Carla expected to complete the building by December 31, 2020. Carla has the following debt obligations outstanding during the construction period. Construction loan-14% interest, payable semiannually, issued December 31, 2019 $2,400,000 Short-term loan-12% interest, payable monthly, and principal payable at maturity on May 30, 2021 1,680,000 Long-term loan-13% interest, payable on January 1 of...
Sheridan Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,500,000 on January 1, 2020. Sheridan expected to complete the building by December 31, 2020. Sheridan 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....
Oriole Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,500,000 on January 1, 2020. Oriole expected to complete the building by December 31, 2020. Oriole has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $5,400,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,780,000 Long-term loan-11% interest, payable on January 1 of...
Martinez Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $15,000,000 on January 1, 2020. Martinez expected to complete the building by December 31, 2020. Martinez 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....
Pearl Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $7,500,000 on January 1, 2020. Pearl expected to complete the building by December 31, 2020. Pearl 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....
Pearl Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $15,000,000 on January 1, 2020. Pearl expected to complete the building by December 31, 2020. Pearl has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $6,000,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 4,200,000 Long-term loan-11% interest, payable on January 1 of...
Windsor Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $8,000,000 on January 1, 2020. Windsor expected to complete the building by December 31, 2020. Windsor has the following debt obligations outstanding during the construction period. $3,200,000 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 2,240,000 Long-term loan-1 1% interest, payable on January...
Blue Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $3,000,000 on January 1, 2020. Blue expected to complete the building by December 31, 2020. Blue has the following debt obligations outstanding during the construction period. $1,200,000 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 840,000 600,000 Long-term loan-11% interest, payable on January 1...