Exercise 10-7 Coronado Furniture Company started construction of a combination o
ID: 2558834 • Letter: E
Question
Exercise 10-7 Coronado Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,993,100 on January 1, 2017. Coronado expected to complete the building by December 31, 2017. Coronado has the following debt obligations outstanding during the construction period. $1,982,700 1,586,000 1,001,500 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 Your answer is incorrect. Try again. Assume that Coronado completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,234,800, and the weighted-average amount of accumulated expenditures was $3,806,700. 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, eg. 5,275.) Avoidable Interest Your answer is incorrect. Try again Compute the depreciation expense for the year ended December 31, 2018. Coronado 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 $301,400. (Round answer to O decimal places, e.g. 5,275.) Depreciation ExpenseExplanation / Answer
1)FIRSTLY , CALCULATE WEIGHTED AVERAGE RATE FOR NON SPECIFIC LOANS
WEIGHTED AVERAGE RATE=($217,015/$2,587,500)*100=8.38%(ROUND OFF 2 DECIMAL PLACES)
NOW WE CALCULATE AVOIDABLE INTEREST
ANSWER: AVOIDABLE INTEREST $351,121
2)FOR DEPRECIATION WE SHOULD FIRST KNOW HOW MUCH AMOUNT IS TO BE CAPITALISED
TOTAL COST FOR OFFICE & WAREHOUSE BUILDING $ 5,234,800
ADD:INTEREST COST (WHICH YOU CALCULATED IN PART 1) $ 351,121
AMOUNT TO BE CAPITALISED $5,585,921
DEPRICIATION ON STRAIGHT LINE= (AMOUNT OF ASSEST-SALVAGE VALUE)/USEFUL LIFE
=(5,585,921-301,400)/30
=$176,150
ANSWER:DEPRCIATION PER YEAR $176,150
TYPE AMOUNT RATE INTEREST SHORT TERM LOAN-8% INT. $1,586,000 8% $126,880 LONG TERM LOAN-9% INT. $1,001,500 9% $90,135 TOTAL $2,587,500 $217,015Related Questions
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