Question

Larkspur Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,975,900 on January 1, 2017. Larkspur expected to complete the building by December 31, 2017. Larkspur has the following debt obligations outstanding during the construction period.

Construction loan-10% interest, payable semiannually, issued December 31, 2016		$1,988,800
Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018		1,609,500
Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021		996,100

Part 1

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Assume that Larkspur completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,235,200, and the weighted-average amount of accumulated expenditures was $3,818,100. 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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Part 2

Compute the depreciation expense for the year ended December 31, 2018. Larkspur 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 $299,200. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation Expense

Answer 1

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