Question

Pronghorn Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $8,500,000 on January 1, 2020. Pronghorn expected to complete the building by December 31, 2020. Pronghorn has the following debt obligations outstanding during the construction period.

Construction loan-10% interest, payable semiannually, issued December 31, 2019 $3,400,000

Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2021 $2,380,000

Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2024 $1,700,000

Question #1: Assume that Pronghorn completed the office and warehouse building on December 31, 2020, as planned at a total cost of $8,840,000, and the weighted-average amount of accumulated expenditures was $6,120,000. Compute the avoidable interest on this project.

Question #2: Compute the depreciation expense for the year ended December 31, 2021. Pronghorn 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 $510,000.

Answer 1

Selution weghted Avorage Rate Nen speceic loay Type Rade Jnterust Ameurd Short tenm toon 2380 000 190400 . Leng term Loan 100o0o 153000 Total 4080000 343400 Average Racte 3434004080o00 Calculation Avoidalele Intorst Aveidable wghted Arerage Grpdstune Radte Intryt Interest on Loon Speciall r 3400000 10% 340000 Constwction. Interest on remalning loan .41% 220000 2२8752- o werghled averageexperse 6120000 568752 he aveidalte Interest en thprofect 568752 Depreclation expense fr the Year ended becember 31, 2020 Be40000 568 52 5to0o0 30 2160२5