Question

Cheyenne 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. Cheyenne expected to complete the building by December 31, 2020. Cheyenne has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2019 $3,200,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 2,240,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 1,600,000

Assume that Cheyenne completed the office and warehouse building on December 31, 2020, as planned at a total cost of $8,320,000, and the weighted-average amount of accumulated expenditures was $5,760,000. 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 $ ?

Compute the depreciation expense for the year ended December 31, 2021. Cheyenne 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 $480,000. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense $ ?

Answer 1

Avoidable Interest woighted-Average ACCUmuated Expend'tuye Avoidable Tntevest Tndeyest X Rate 3, 200,000 $ 384,000 $2.66,752 R1560p00 I0.42 5, 60,000 650,752 weighted- averag e intevest Yate computatabn Prindpal 2,240,000 (x 10'%) 600, 000 (x \1/.) Jeves Short em loan 224,000 Jorg em doan T6,000 po,o00 3840,000 $ 400,000 Todtal intest 10.42./. To tal pincipal $ 3,84o,000 Actval ntrest 3,200,000 x 12y. construution Joan 384,000 $2,240,000 * 10. Short tem Joan- 22,000 11600,000 x 16,000 Lona term loan $784,000 Since, avoidable nterest is Jbwer tham actual intrest, use avaidable ntest Tatal cost Cost t Iheves capitalized - 8,320,000 t6 50,75 $ 9,970752- 8,910,752 $480000 Depre cialia exense 30 yeus 283026