Exercise 10-7 (Part Level Submission) Sarasota Furniture Company started constru

Question

Exercise 10-7 (Part Level Submission) Sarasota Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,024,000 on January 1, 2017. Sarasota expected to complete the building by December 31, 2017. Sarasota has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2016 short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2018 Long-term loan 11% interest, payable on January 1 of each year. Principal payable on January 1, 2021 $1,990,500 1,603,500 990,300 Your answer is correct. Assume that Sarasota completed the office and warehouse building on December 31, 2017, as planned at a total cost of S5,167,700, and the weighted-average amount of accumulated expenditures was $3,777,200. Compute the avoidable interest on this project. Use interest rates rounded to 2 decimal places e. 7.58% or computatonal purposes and round final answers to 0 decimal places e.g. 5,275.) Avoidable Interest 424321 Click if you would like to Show Work for this question: Open Show Work ON SHOW ANSWER LINK TO TEXT Attempts: 1 of 3 used Compute the depreciation expense for the year ended December 31, 2018, Sarasota elected to depreciate the building on a straight line basis and determined that the asset has a useful life of 30 years and ? salvage value of $302,800. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense

Explanation / Answer

(b) Amount Actual Interest Construction Loan       19,90,600 12%       2,38,872 Short Term Loan       16,03,500 10%       1,60,350 Long Term Loan        9,90,300 11%       1,08,933       5,08,155 Because avoidable interest is lower than actual interest, use avoidable interest Cost       51,67,700 Interest capitalized        4,24,321 Total       55,92,021 Depreciation expenses = ($5,592,021 - $302,800)/30 = $176,307

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