Reference no: EM132627172

Question - Skysong Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $11,000,000 on January 1, 2020. Skysong expected to complete the building by December 31, 2020. Skysong has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, issued December 31, 2019 $4,400,000.

Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,080,000.

Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,200,000.

Required -

Assume that Skysong completed the office and warehouse building on December 31, 2020, as planned at a total cost of $11,440,000, and the weighted-average amount of accumulated expenditures was $7,920,000. Compute the avoidable interest on this project.

Compute the depreciation expense for the year ended December 31, 2021. Skysong 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 $660,000.