Reference no: EM132799230

Question - Indigo Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,043,000 on January 1, 2017. Indigo expected to complete the building by December 31, 2017. Indigo has the following debt obligations outstanding during the construction period.

Construction loan-10% interest, payable semi-annually, issued December 31, 2016 $2,010,900

Short-term loan-8% interest, payable monthly, and principal payable at maturity on May 30, 2018 1,608,200

Long-term loan-9% interest, payable on January 1 of each year.

Principal payable on January 1, 202 11,003,400

Required -

1. Assume that Indigo completed the office and warehouse building on December 31, 2017, as planned at a total cost of $5,167,000, and the weighted-average amount of accumulated expenditures was $3,776,000. Compute the avoidable interest on this project.

2. Compute the depreciation expense for the year ended December 31, 2018. Indigo 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 $299,100.