Harrisburg Furniture Company started construction of a combination



Exercise 10-7
Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,016,000 on January 1, 2014. Harrisburg expected to complete the building by December 31, 2014. Harrisburg has the following debt obligations outstanding during the construction period.

Construction loan—11% interest, payable semiannually, issued December 31, 2013 $2,013,800
Short-term loan—9% interest, payable monthly, and principal payable at maturity on May 30, 2015 1,620,400
Long-term loan—10% interest, payable on January 1 of each year; principal payable on January 1, 2018 1,010,800

Assume that Harrisburg completed the office and warehouse building on December 31, 2014, as planned at a total cost of $5,211,800, and the weighted average amount of accumulated expenditures was $3,815,600. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)

Avoidable Interest

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Compute the depreciation expense for the year ended December 31, 2015. Harrisburg 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 $303,500.


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