Question
Pronghorn Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,978,200 on January 1,
Pronghorn Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,978,200 on January 1, 2017. Pronghorn expected to complete the building by December 31, 2017. Pronghorn has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2016$2,012,000Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 20181,615,200Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 20211,001,500
(a)
Assume that Pronghorn completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,207,200, and the weighted-average amount of accumulated expenditures was $3,811,300. 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.)
(b)
Compute the depreciation expense for the year ended December 31, 2018. Crane 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 $297,000.(Round answer to 0 decimal places, e.g. 5,275.)
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