Monty Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $2,500,000 on January 1, 2020. Monty expected to complete the building by December 31, 2020. Monty has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semi-annually,
issued December 31, 2019 $1,000,000
Short-term loan-10% interest, payable monthly, and
principal payable at maturity on May 30, 2021 700,000
Long-term loan-11% interest, payable on January 1 of
each year. Principal payable on January 1, 2024 500,000.
1. Assume that Monty completed the office and warehouse building on December 31, 2020, as planned at a total cost of $2,600,000, and the weighted-average amount of accumulated expenditures was $1,800,000. Compute the avoidable interest on this project.
2. Compute the depreciation expense for the year ended December 31, 2021. Monty 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.