NashFurniture Company started construction of a combination office and warehouse building for its own use at...

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Answer

	Explanation :

a)	The weighted average interest rate of all other debt (Other than the specific loan)

	Debt	Amount	Interest rate	Interest amount
	10% Loan	12,60,000	10%	1,26,000
	11% Loan	9,00,000	11%	99,000
		21,60,000		2,25,000

	Weighted avg rate = 225,000/21,60,000 x 100 = 10.4167%

	Computation of Avoidable interest

	Particulars	Average	Interest rate	Avoidable interest
	Avg accumulated expenditure	32,40,000
	From:
	Specific Loan interest	18,00,000	12%	2,16,000
	Other debt interest	14,40,000	10.4167%	1,50,000
	Total avoidable interest			3,66,000

b)	Depreciation expense	$135,200

	Workings:
	Straight Line method:-

	Cost of building	Total cost + Avoidable Interest
		$3,960,000 + $366,000
		$ 43,26,000

	Depreciation expense	(Cost - Residual value) / useful Value
	=	($43,26,000 - $270,000) / 30 years
	=	= 135,200	per year

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Construction loan-12% interest, payable semiannually, issuedDecember 31, 2019		$1,800,000
Short-term loan-10% interest, payable monthly, and principalpayable at maturity on May 30, 2021		1,260,000
Long-term loan-11% interest, payable on January 1 of each year.Principal payable on January 1, 2024		900,000

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