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Major Industries Inc. started construction of a manufacturing facility for its own use at an

estimated cost of $$10,000,000$ on January $1,2022.$ Major expected to complete the building by

December $31,2022.$ Major's debt, all of which was outstanding during the construction

period, was as follows.

i$.$ Construction loan, $11\%$ interest, payable semi$-$annually, issued December $31,2021$;

$$5,000,000$

ii$.$ Long$-$term loan #$1,10\%$ interest, payable on January $1$ of each year. Principal payable

on January $1,2022$;$$1,500,000$

iii. Long$-$term loan #$2,12\%$ interest, payable on December $31$ of each year. Principal

payable on December $31,2030$;$$3,500,000$

Instructions

a$)$ Compute the weighted average interest rate of the general long$-$term loans.

b$)$ Assume that Major completed the facility on December $31,2022,$ at a total cost of

$$10,300,000($excluding interest$),$ and the average carrying amount of expenditures was

$$6,800,000.$ Compute the interest to be capitalized on this project.

c$)$ Compute the depreciation expense for the year ended December $31,2023.$ Major

estimated the facility's useful life to be $25$ years with a salvage value of $$1,000,000.$

Major elected to depreciate the facility on a straight$-$line basis.

a$)$

Weighted$-$average interest rate $,$ Principle $,$ Interest

Total

Total

Weighted$-$average interest rate

$($Computation is shown here$)$

b$)$

Original cost

Interest capitalized

Total cost

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