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Valve Company started construction of a combination office and warehouse building on January 1, 2017...

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Accounting

Valve Company started construction of a combination office and warehouse building on January 1, 2017 for its own use at an estimated cost of $5,000,000. The expected completion date of this construction project is December 31, 2017. The following debt obligations are outstanding during the construction period. $2,000,000 Construction loan12% interest, payable semiannually, issued December 31, 2016 $1,400,000 Short-term loan10% interest, payable monthly, and principal payable at maturity on May 30, 2018 $1,000,000 Long-term loan11% interest, payable on January 1 of each year. Principal payable on January 1, 2021

(a) Assume that Valve completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,200,000, and the weighted-average amount of accumulated expenditures was $3,600,000. Compute the avoidable interest on this project. (Carry all computations to two decimal places.)

(b) Compute the depreciation expense for the year ended December 31, 2018. Valve 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 $300,000. (Carry all computations to two decimal places.)

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