Exercise 10-07

Sarasota Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $2,500,000 on January 1, 2020. Sarasota expected to complete the building by December 31, 2020. Sarasota has the following debt obligations outstanding during the construction period.

Assume that Sarasota completed the office and warehouse building on December 31, 2020, as planned at a total cost of $2,600,000, and the weighted-average amount of accumulated expenditures was $1,800,000. 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.)

Compute the depreciation expense for the year ended December 31, 2021. Sarasota 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 $150,000. (Round answer to 0 decimal places, e.g. 5,275.)

Construction loan-12% interest, payable semiannually, issued December 31, 2019		$1,000,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021		700,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024		500,000