Exercise 10-7 Sheridan Furniture Company started construction of a combination o
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Question
Exercise 10-7 Sheridan Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,950,000 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 Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018 Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1,2021 993,800 $1,989,400 1.591,100 Assume that Sheridan completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,211,800, and the weighted-average amount of accumulated expenditures was $3,768,500. Compute the avoidable interest on this project (Use interest rates rounded to 2 decimal places, e.g. 7.S8% for computational purposes and round final answers to 0 decimal places, eg. S,275.) Avoidable Interest LINK TO TEXT Compute thedepreciation 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 $299,800 (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense Click if you would like to Show Work for this question: Open Show WorlkExplanation / Answer
Exercise 10-7) Construction loan is of specific nature and other two loans are of general nature, therefore weighted average interest for two general loan need to be calculated which is shown as follows:-
Calculation of Weighted Average Interest Rate (Amounts in $)
Weighted Average Interest Rate = Total Interest/Total Loan Amount
= $216,730/$2,584,900 = 0.0838 or 8.38%
Avoidable Interest = (Construction Loan Amt*Interest Rate)+(Weighted Avg Exp. - Construction loan)*Weighted Avg Interest Rate
= ($1,989,400*10%)+[($3,768,500-$1,989,400)*8.38%]
= $198,940+$149,089 = $348,029
Therefore the avoidable interest is $348,029.
Calculation of Depreciation Expense for Building
Depreciation Expense = (Cost - Salvage Value)/Useful Life
= ($5,211,800 - $299,800)/30 yrs = $163,733 per year
Exercise 135) Journal Entry (Amounts in $)
Therefore the gain to be recognized from the exchange is $122,500 as calculated in the above journal entry.
Question 14) The price of $2,129,000 will be allocated to land and building in the ratio of respective their fair values. The allocation to land and building is shown as follows:-
Total Fair Value of Land and Building = $646,700+$1,940,100 = $2,586,800
Allocated Cost to Land = $2,129,000*($646,700/$2,586,800)
= $532,250
Allocated Cost to Building = $2,129,000*($1,940,100/$2,586,800)
= $1,596,750
Loan Loan Amount (A) Interest Rate (B) Interest (A*B) Short Term Loan 1,591,100 8% 127,288 Long Term Loan 993,800 9% 89,442 Total 2,584,900 216,730Related Questions
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