Question

Exercise 10-07 Sheridan Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,000,000 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 $5,200,000 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,640,000 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,600,000

Assume that Sheridan completed the office and warehouse building on December 31, 2020, as planned at a total cost of $13,520,000, and the weighted-average amount of accumulated expenditures was $9,360,000. 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 $ LINK TO TEXT

Compute the depreciation expense for the year ended December 31, 2021. 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 $780,000. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense $

Answer 1

@ Interest Rate Avoldable Interest Avoidable in tvest weighted average Accumulated cupenditure $ 5,200,000 $ 4,160,000 $ 9,360,000 12% 9.6% $ 624,000 $ 399,360 $ 1,023,360 weighted-average interest rate computation = o Principal Interest 10 % short term loan $ 3,640,000( x 80-) = $364,000 11% long term wan $ 3,600,000 (*19%) = $ 286,000 $ 6,240,000 $ 650,000 - Total intrest - $6,240,000 $ 650,000 I 9.6% Total principal actual intrest construction loan - $ 5,200,000 x 12%. Short term loan - $ 3,640,000 X 10% long term Joon - $ 2,600,000 X 11 = = = $ 624,000 $ 364,000 $ 286,000 $ 1,274,000 Since, avoidable intrest is lower than actual intrest we avoidable intrest. cost + Intrest capitalization = Tostaill cost $ 13,520,000+ $ 1,023,380 = $14,543,360 Depreciation expense = $14,543,360 $780.000 30 years $ 458,779