Question

Pearl Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,981,900 on January 1, 2017. Pearl expected to complete the building by December 31, 2017. Pearl has the following debt obligations outstanding during the construction period. Construction loan-10% interest, payable semiannually, issued December 31, 2016 $2,000,100 Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018 1,595,800 Long-term loan-9% interest, payable on January 1 of each year. Principal payable on January 1, 2021 1,002,900

Assume that Pearl completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,251,100, and the weighted-average amount of accumulated expenditures was $3,799,100. 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 $ LINK TO TEXT

Compute the depreciation expense for the year ended December 31, 2018. Pearl 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 $297,300. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation Expense $

Answer 1

Calculation of avoidable interest
Loans	Amount taken	Rate of interest	Interest payable
Loan taken for construction	2000100	10%	200010
Short term loan (General)	1595800	8%	127664
Long term loan (General)	1002900	9%	90261
Total	4598800		417935
Weighted Average interest Rate	(417935-200010)/(1595800+1002900)	8.39%
Appropreate interest Rate	8.39%
Avoidable interest = 2000100*10%(3799100-2000100)*8.39%	350946.1

Note :Iterest to be capitalised with cost of asset is the lower of actual interest payable or avoidable interest
	Actual interest =417935
	Avoidable interest =350946.1

Calculation of depreciation
Straight Line Depreciation Method = (Cost of an Asset – Residual Value)/Useful life of an Asset
Cost of Building	5251100
Add : Interest to be capitalised	350946.1
Total Value of building	5602046.1
Depreciation
Total Value of building	5602046.1
Less:salvage value		297300
Useful life	30 years
Depreciation=(Value of buiding-salvage value)/useful life
Depreciation=(5602046-297300)/30
Deprecation	176824.9