Exercise 10-7 Sunland Furniture Company started construction of a combination of
ID: 2569596 • Letter: E
Question
Exercise 10-7 Sunland Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,981,900 on January 1, 2017. Sunland expected to complete the building by December 31, 2017. Sunland 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 1,002,900 $2,000,100 1,595,800 Assume that Sunland completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,251,100, and the weighted-average amount of accumulated expenditures was $3,799,100. 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 O decimal places, e.g. 5,275.) Avoidable Interest LINK TO TEXT Compute the depreciation expense for the year ended December 31, 2018. Sunland 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 $297,00. (Round answer to O decimal places, e.g. 5,275.) Depreciation ExpensesExplanation / Answer
Effective interest rate = (1.05)^2 - 1 *100 = 10.25%
Avoidable interest = 3799100*10.25% + (5251100 - 4981900)*10.25%= 389407.75 + 27593 = 417000.75
Depreciation Expense = (5251100+3799100-297300)/30 = 291763.33
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