Question

Bramble 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. Bramble expected to complete the building by December 31, 2020. Bramble has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, 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

Assume that Bramble 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. (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. Bramble 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 $150,000. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation Expense

$

Answer 1

Answer
a) Calculation of avoidable interest
Particulars	Average	Interest Rate	Avoidable Interest
Average accumulated expenditure	$    18,00,000
Construction loan	$    10,00,000	10%	$   1,00,000
Other loan	$      8,00,000	10.42%**	$      83,360
			$   1,83,360
***weighted average interest rate for other loan
Loan	Amount	Rate	Interest
Short term	$      7,00,000	10%	$      70,000
Long term	$      5,00,000	11%	$      55,000
	$    12,00,000		$   1,25,000
weighted average rate =	$      1,25,000	$ 12,00,000	10.42%
b) calculation of depreciation expense
Particulars	Amount
Cost	₹    26,00,000
Interest capitalized	₹      1,83,360
Total cost	₹    27,83,360
salvage	₹      1,50,000
life	30 Years
depreciation expense for 2018 = ($27,83,360-$,150,000)/30	₹    27,78,360
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