10-07

Stellar Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $12,500,000 on January 1, 2020. Stellar expected to complete the building by December 31, 2020. Stellar has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, issued December 31, 2019		$5,000,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021		3,500,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024		2,500,000

Assume that Stellar completed the office and warehouse building on December 31, 2020, as planned at a total cost of $13,000,000, and the weighted-average amount of accumulated expenditures was $9,000,000. 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

$

Compute the depreciation expense for the year ended December 31, 2021. Stellar 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 $750,000. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation Expense

$