McPherson Furniture Company started construction of a combonation office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2012. McPherson expected to complete the building b December 31, 2012. McPherson has the following debt obligations outstanding during the construction period. Construction loan - 12% interest, payable semi-annually, issued Dec 31, 2011 $2,000,000 Short-term loan 10% interest, payable monthly, and principal payable at maturity on May 30, 2013 $1,600,000 Long-term loan - 11% interest, payable on January 1 of each year, principal payable on January 1, 2016 $1,000,000 Carry All computations to two decimal points
a) Assume that McPherson completed the office and warehouse building on Dec 31, 2012 as planned at a total cost of $5,200,000, and the weighted average of accumulated expenditures, was $3,800,000.Compute the avoidable interest on this project.
b) Compute the depreciation expense for the year ended December 31, 2013. McPherson elected to depreciate the building on a straight-line basis and determined that the asset has a useful lfe of 30 years and a salvage value of $300,000.