Capitalization of Interest and Depreciation
During 2014, Sparrow Inc. borrowed $88,000 from a local bank. In addition, Sparrow used $120,000 of cash to construct a new corporate office building. Based on average accumulated expenditures, the amount of interest capitalized during 2014 was $8,000. Construction was completed, and the building was occupied on January 1, 2015.
Required:
1. Determine the acquisition cost of the new building.
2. The building has an estimated useful life of 20 years and a $5,000 salvage value. Assuming that Sparrow uses the straight-line basis to depreciate its operating assets, determine the amount of depreciation expense for 2014 and 2015. If necessary, round any depreciation calculations to the nearest dollar. If an amount is zero, enter "0".