Question

Flint Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,024,700 on January 1, 2017. Flint expected to complete the building by December 31, 2017. Flint has the following debt obligations outstanding during the construction period Construction loan-12% interest, payable semiannually, issued December 31, 2016 $2,002,200 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2018 1,598,900 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2021 1,007,400 Part 1 Assume that Flint completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,195,200, and the weighted-average amount of accumulated expenditures was $3,835,700. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, eg. 7.58% for computational purposes and round final answers to O decimal places, e.g. 5,275.) Avoidable Interest $ eTextbook and Media Attempts: 0 of 15 used Save for Later Submit Answer Part 2 Compute the depreciation expense for the year ended December 31, 2018. Flint 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 $298,800. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense $ eTextbook and Media Attempts: 0 of 15 used Save for Later Submit Answer

Answer 1

ANSWER

Weighted average Accumulated expenditures	Interest Rate	Avoidable Interest
2,002,200	12%	240,264
1,833,500	10.38%	190,317
3,835,700		430,581

Weighted-average interest rate computation	Principal	Interest
10%short term	1,598,900	159,890
11% Long term	1,007,400	110,814
	2,606,300	270,704
Total Interest/ Total Principal	270,704 / 2,606,300	10.38%

	Actual Interest
Construction Loan	2,002,200	12%	240,264
Short-term Loan	1,598,900	10%	159,890
Long-term Loan	1,007,400	11%	110,814
Total			510,968

Because avoidable interest is lower than actual interest, use avoidable interest
Cost	5,195,200
Interest capitalized	430,581
Total Cost	5,706,168
Depreciation Expense	(5,706,168-298,800)/30
	180,245

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