Harrisburg furniture company started construction of a combination office and warehouse building
for its own use at an estimated cost of $5,000,000 on january 1, 2017. harrisburg expected to complete the building by december 31, 2017. harrisburg has the following debt obligations outstanding during
the construction period:
construction loan - 12% interest, payable semiannually, issued 12/31/16; 2,000,000
short-term loan - 10% interest, payable monthly, and principle payable at maturity on may 30, 2018; 1,400,000
long-term loan - 11% interest, payable on january 1 of each year; principal payable on january 1, 2021; 1,000,000
a) assume the harrisburg completed the office building and warehouse building on 12/31/17, as planned
at a total cost of $5,200,000, and weighted average of accumulated expenditures was $3,600,000. compute the avoidable interest for this project.
b) compute depreciation expense for the year ended december 31, 2018. harrisburg 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 300,000.