Sheridan Furniture Company started construction of a combination
office and warehouse building for its own use at an estimated cost
of $4,972,800 on January 1, 2017. Sheridan expected to complete the
building by December 31, 2017. Sheridan has the following debt
obligations outstanding during the construction period.
Construction loan-10% interest, payable semiannually, issued December 31, 2016 | $2,019,500 | |
Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018 | 1,605,600 | |
Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021 | 1,001,000 |
Compute the depreciation expense for the year ended December 31,
2018. Sheridan 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 $302,700. (Round
answer to 0 decimal places, e.g. 5,275.)
Depreciation Expense |
$ |
CAPITALIZATION OF INTEREST : | |||||||
A | Accumulated expenditure in beginning 2017 | $0 | |||||
B | Accumulated expenditure at end 2017 | $4,972,800 | |||||
C=(A+B)/2 | Average accumulated expenditure | $2,486,400 | |||||
D | Construction Loan | $2,019,500 | |||||
E=C-D | Other Loan | $466,900 | |||||
F | Interest on construction loan=10%*2019500 | $201,950 | |||||
OTHER LOANS | |||||||
Loan amount | Percent | Annual Interest | |||||
Short Term loan | $1,605,600 | 8% | $128,448 | ||||
Long termloan | $1,001,000 | 9% | $90,090 | ||||
TOTAL | $2,606,600 | 8.38% | $218,538 | ||||
Weighted average interest rate=218538/2606600 | 8.38% | ||||||
Interest Cost tobe capitalized< | |||||||
Borrowing amount | Interest rate | Interest cost | |||||
Construction Loan | $2,019,500 | 10% | $201,950 | ||||
Other borrowing | $466,900 | 8.38% | $39,145 | ||||
Total | $241,095 | ||||||
Asset to be depreciated : | |||||||
Accumulated expenditure at end 2017 | $4,972,800 | ||||||
Capitalized Interest | $241,095 | ||||||
G | Total capitalized asset | $5,213,895 | |||||
H | Salvage Value | $302,700 | |||||
I | Useful Life in years | 30 | |||||
AnnualDepreciation =(Capitalized asset-Salvage Value)/(Usefullife) | |||||||
J=(G-H)/I | Depreciation expense | $163,707 | |||||
l | |||||||
Sheridan Furniture Company started construction of a combination office and warehouse building for its own use...
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