Question

Culver Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $6,000,000 on January 1, 2020. Culver expected to complete the building by December 31, 2020. Culver has the following debt obligations outstanding during the construction period.

Construction loan-14% interest, payable semiannually, issued December 31, 2019		$2,400,000
Short-term loan-12% interest, payable monthly, and principal payable at maturity on May 30, 2021		1,680,000
Long-term loan-13% interest, payable on January 1 of each year. Principal payable on January 1, 2024		1,200,000

1. Assume that Culver completed the office and warehouse building on December 31, 2020, as planned at a total cost of $6,240,000, and the weighted-average amount of accumulated expenditures was $4,320,000. Compute the avoidable interest on this project.

2. Compute the depreciation expense for the year ended December 31, 2021. Culver 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 $360,000.

Answer 1

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