Question
NashFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,500,000 on January 1, 2020.
NashFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,500,000 on January 1, 2020. Nash expected to complete the building by December 31, 2020. Nash has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2019 | $1,800,000 | |
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 | 1,260,000 | |
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 | 900,000 |
(a)
Assume that Nash completed the office and warehouse building on December 31, 2020, as planned at a total cost of $4,680,000, and the weighted-average amount of accumulated expenditures was $3,240,000. Compute the avoidable interest on this project.
*Answer 366,000 is incorrect.
(b)
Compute the depreciation expense for the year ended December 31, 2021. Nash 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 $270,000.
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