Question
Flounder Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $3,500,000 on January 1,
Flounder Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $3,500,000 on January 1, 2020. Flounder expected to complete the building by December 31, 2020. Flounder has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2019 $1,400,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 1,050,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 700,000
Assume that Flounder completed the office and warehouse building on December 31, 2020, as planned at a total cost of $3,640,000, and the weighted-average amount of accumulated expenditures was $2,520,000. Compute the avoidable interest on this project.
Compute the depreciation expense for the year ended December 31, 2021. Flounder 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 $210,000.
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