Exercise 10-7

Bramble Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,993,100 on January 1, 2017. Bramble expected to complete the building by December 31, 2017. Bramble has the following debt obligations outstanding during the construction period.

Construction loan-10% interest, payable semiannually, issued December 31, 2016		$1,982,700
Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018		1,586,000
Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021		1,001,500

a)Assume that Bramble completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,234,800, and the weighted-average amount of accumulated expenditures was $3,806,700. Compute the avoidable interest on this project

b)Compute the depreciation expense for the year ended December 31, 2018. Bramble 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 $301,400.