Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2020. Harrisburg expected to complete the building by December 31, 2020. Harrisburg has the following debt obligations outstanding during the construction period.

Construction loan—12% interest, payable semiannually, issued
December 31, 2019....................................................................................................$2,000,000
Short-term loan—10% interest, payable monthly, and principal payable
at maturity on May 30, 2021.......................................................................................1,400,000
Long-term loan—11% interest, payable on January 1 of each
year. Principal payable on January 1, 2024...............................................................1,000,000

Instructions

(Carry all computations to two decimal places.)

a. Assume that Harrisburg completed the office and warehouse building on December 31, 2020, as planned at a total cost of $5,200,000, and the weighted-average amount of accumulated expenditures was $3,600,000. Compute the avoidable interest on this project.

b. Compute the depreciation expense for the year ended December 31, 2021. Harrisburg 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 $300,000.