Answer:
a. $610,080
b. $267,002.67
Explanation:
a. Weighted interest for short and long term loan.
Interest on short term loan = 10% * 2,100,000 = $210,000
Interest on long term loan = 11% * 1,500,000 = $165,000
Weighted interest = (210,000 + 165,000) / (2,100,000 + 1,500,000)
= 10.42%
Avoidable interest = Construction interest + ((Weighted-average amount of accumulated expenditures - Construction cost) * Weighted interest )
= (3,000,000 * 12%) + ((5,400,000 - 3,000,000) * 10.42%)
= $610,080
b. Capitalized cost = Cost to complete office and warehouse + Avoidable interest
= 7,800,000 + 610,080
= $8,410,080
Salvage value and Useful life are not included so assuming a salvage value of $400,000 and 30 years using a straight line depreciation, depreciation is;
Depreciation = (8,410,080 - 400,000 ) / 30
= $267,002.67
