Exercise 10-7 Nash Furniture Company started construction of a combination offic
ID: 2576870 • Letter: E
Question
Exercise 10-7 Nash Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,049,200 on January 1, 2017. Nash expected to complete the building by December 31, 2017. Nash 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 $1,986,000 1,612,700 1,005,400 Assume that Nash completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,240,800, and the weighted-average amount of accumulated expenditures was $3,806,600. 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, e.g. 5,275.) Avoidable Interest s LINK TO TEXT Compute the depreciation expense for the year ended December 31, 2018. Nash 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 $301,600. (Round answer to O decimal places, e.g. 5,275.) Depreciation ExpensesExplanation / Answer
Weighted average rate
$1612700 * 10% $161270
$1005400 * 11% $110594
$2618100 $271864
Weighted average rate = $271864 / $2618100
= 10.38%
Computation of Avoidable interest
$1986000 * 12% $238320
$1820600 * 10.38% $188978
$188978
Depreciation expense = [($5240800 + $188978) - $301600] / 30 years
= $170939.
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