Question

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

$

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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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Answer 1

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