Reference no: EM13608642

McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $7,020,000 on January 1, 2010. McPherson expected to complete the building by December 31, 2010. McPherson has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, issued
December 31, 2009 $2,700,000
Short-term loan-10% interest, payable monthly, and principal
payable at maturity on May 30, 2011 1,890,000
Long-term loan-11% interest, payable on January 1 of each
year. Principal payable on January 1, 2014 1,350,000

(a) Assume that McPherson completed the office and warehouse building on December 31, 2010, as planned at a total cost of $7,020,000, and the weighted average of accumulated expenditures was $4,860,000. Compute the avoidable interest on this project. (Round interest percentage to 2 decimal places, e.g. 12.25% and use this amount for future calculations. Round other intermediate calculations and the final answer to 0 decimal places, e.g. 250,200.)

(b) Compute the depreciation expense for the year ended December 31, 2011. McPherson 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 $405,000. (Round answer to 0 decimal places, e.g. 205,250.)