Question

# Bridgeport Furniture Company started construction of a combination office and warehouse building for its own use...

Bridgeport Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of \$8,500,000 on January 1, 2020. Bridgeport expected to complete the building by December 31, 2020. Bridgeport has the following debt obligations outstanding during the construction period.
 Construction loan-10% interest, payable semiannually, issued December 31, 2019 \$3,400,000 Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2021 2,380,000 Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2024 1,700,000
Assume that Bridgeport completed the office and warehouse building on December 31, 2020, as planned at a total cost of \$8,840,000, and the weighted-average amount of accumulated expenditures was \$6,120,000. 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.)
 Avoidable Interest \$
Compute the depreciation expense for the year ended December 31, 2021. Bridgeport 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 \$510,000. (Round answer to 0 decimal places, e.g. 5,275.)
 Depreciation Expense \$
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 Particulars Amount Rate Interest 8% Note payable \$ 2,380,000 8% \$ 190,400 9% Note payable \$ 1,700,000 9% \$ 153,000 Total \$ 4,080,000 \$ 343,400 Weigted average interest rate = \$ 343,400 /\$ 4,080,000 8.42%
 Debt Amount Interest rate Avoidable Interest Constrution Loan \$3,400,000 10% \$ 340,000 Other loan (\$6,120,000 (-) \$ \$3,400,000) \$ 2,720,000 8.42% \$ 229,024 \$ 6,120,000 Avoidable Interest \$ 569,024
 2) Total cost of building = Costs Incurred + Avoidable Interest \$ 8,840,000 + \$ 569,024 \$ 9,409,024 Depreciation expense for 2021 (Cost - Residual Value)/ Useful Life (\$ 9,409,024 (-) \$ 510,000 / 30 Years \$ 296,634

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