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Compute the avoidable interest on this project

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Question - Xyze Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,500,000 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 semiannually, issued December 31, 2019 $5,400,000

Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 202 13,780,000

Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,700,000

Assume that Monty completed the office and warehouse building on December 31, 2020, as planned at a total cost of $14,040,000, and the weighted-average amount of accumulated expenditures was $9,720,000. Compute the avoidable interest on this project.

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 $810,000.

 

Reference no: EM132480484

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