Question

Exercise 10-07 Wildhorse Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $14,000,000 on January 1, 2020. Wildhorse expected to complete the building by December 31, 2020. Wildhorse has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $5,600,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,920,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,800,000

Assume that Wildhorse completed the office and warehouse building on December 31, 2020, as planned at a total cost of $14,560,000, and the weighted-average amount of accumulated expenditures was $10,080,000. 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.) Avoidable Interest $ 1138816

Compute the depreciation expense for the year ended December 31, 2021. 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 $840,000. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense $

PLEASE SHOW ALL WORK.

Answer 1

Wildhorse Furniture Company Requirement 1 Weighted Average Accumulated Expenditterest Ra Calculation of Avoidable Interest Avoidable Interest Calculate interest on loan specifically for construction 56,00.000 12.00% 6,72,000 44.80.000 10.42% 4.66.816 Calculate interest on remaining loan up to weighted average expenditures total using "weighted average rate TOTALS 1,00.80.000 S 11,38,816 Weighted Average Rate for non-specific loans Type Short-term loan Long-term loan Total Amount 39,20,000 28,00.000 67,20,000 Rate 10.00% 11.00% Interest 3.92.000 3,08,000 7,00.000 Weighted Average Rate 10.42% 700,000 6.720,000

Requirement 2 Calculation of Actual Interest Paid Rate Type Construction loan Short-term loan Long-term loan Total Amount 56,00.000 39.20.000 28.00.000 1,23,20,000 12.00% 10.00% 11.00% Actual Interest 6,72,000 3,92,000 3.08.000 13,72,000 Compare Actual Interest to Avoidable Interest Actual Interest Paid 13,72,000 Avoidable Interest (from al 11,38,667 use in building cost since lower amount Therefore, Building Cost is: Cost of Construct Capitalized Interest Total Cost 1,45,60,000 11,38,667 1,56,98,667 Total Cost Less: Salvage Value Depreciable Base 1.56.98.667 8,40.000 1,48,58,667 Depreciation Expense = 1.48,58,667 Depreciation Expense = 4,95,289

Wildhorse Furniture Company Requirement 1 Weighted Average Accumulated Expenditterest Ra Calculation of Avoidable Interest Avoidable Interest Calculate interest on loan specifically for construction 56,00.000 12.00% 6,72.000 44.80.000 10.42% 4,66,667 Calculate interest on remaining loan up to weighted average expenditures total using "weighted average rate TOTALS 1,00.80.000 S 11,38,667 Weighted Average Rate for non-specific loans Type Short-term loan Long-term loan Total Amount 39,20,000 28,00.000 67,20,000 Rate 10.00% 11.00% Interest 3.92.000 3,08,000 7,00.000 Weighted Average Rate 10.42% 700,000 6.720,000

Requirement 2 Calculation of Actual Interest Paid Rate Type Construction loan Short-term loan Long-term loan Total Amount 56,00.000 39.20.000 28.00.000 1,23,20,000 12.00% 10.00% 11.00% Actual Interest 6,72,000 3,92,000 3.08.000 13,72,000 Compare Actual Interest to Avoidable Interest Actual Interest Paid 13,72,000 Avoidable Interest (from al 11,38,667 use in building cost since lower amount Therefore, Building Cost is: Cost of Construct Capitalized Interest Total Cost 1,45,60,000 11,38,667 1,56,98,667 Total Cost Less: Salvage Value Depreciable Base 1.56.98.667 8,40.000 1,48,58,667 Depreciation Expense = 1.48,58,667 Depreciation Expense = 4,95,289