Problem 1: During 2020, Susan Building Company constructed various assets at a total cost of $12,600,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2020 were $8,138,000. The company had the following debt outstanding at December 31, 2020:
A) 10%, 5-year note to finance construction of various assets, dated January 1, 2020, with interest payable annually on January 1 $5,452,000.
B) 12%, ten-year bonds issued at par on December 31, 2014, with interest payable annually on December 315,946,000.
C) 9%, 3-year note payable, dated January 1, 2019, with interest payable annually on January 1 2,973,000.
Compute the amounts of each of the following.
1. Avoidable interest.
2. Total interest to be capitalized during 2020.
Problem 2: Sheffield Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $7,500,000 on January 1, 2020. Sheffield expected to complete the building by December 31, 2020. Sheffield has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2019 $3,000,000.
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 2,100,000.
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 1,500,000.
Assume that Sheffield completed the office and warehouse building on December 31, 2020, as planned at a total cost of $7,800,000, and the weighted-average amount of accumulated expenditures was $5,400,000. Compute the avoidable interest on this project.
Compute the depreciation expense for the year ended December 31, 2021. Sheffield 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 $450,000.
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