Question

Windsor Industries Inc. started construction of a manufacturing facility for its own use at an estimated cost of $9,400,000 on January 1, 2017. Windsor expected to complete the building by December 31, 2017. Windsor’s debt, all of which was outstanding during the construction period, was as follows. ● Construction loan—11% interest, payable semiannually, issued December 31, 2016; $4,700,000 ● Long-term loan #1 – 10% interest, payable on January 1 of each year. Principal payable on January 1, 2019; $1,410,000 ● Long-term loan #2—12% interest, payable on December 31 of each year. Principal payable on December 31, 2025; $3,290,000 Assume that Windsor completed the facility on December 31, 2017, at a total cost of $9,682,000, and the weighted-average amount of accumulated expenditures was $6,392,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% and round final answer to 0 decimal places, e.g. 5,275.) Avoidable Interest $ enter the avoidable interest in dollars Compute the depreciation expense for the year ended December 31, 2018. Windsor estimated the facility’s useful life to be 25 years with a salvage value of $940,000. Windsor elected to depreciate the facility on a straight-line basis. Depreciation Expense $ enter the Depreciation Expense in dollars

Answer 1

1)

Weighted-Average Accumulated Expenditures	Interest Rate	Avoidable Interest
4,700,000.00	11%	517,000.00
1,692,000.00	11.40%	192,888.00
Total Avoidable Interest		709,888.00

Working Note-

Amount	Interest Rate	Interest
1,410,000.00	10%	141,000.00
3,290,000.00	12%	394,800.00
4,700,000.00		535,800.00

Average Rate = 535,800/4,700,000 = 11.40%

2)Depreciation Expense = ( 9,682,000 + 709,888 - 940,000)/25

=378,075.52