Answered: Assume that Pearl completed the office…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 10-07

Pearl Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $8,000,000 on January 1, 2020. Pearl expected to complete the building by December 31, 2020. Pearl has the following debt obligations outstanding during the construction period.

Construction loan-12% interest, payable semiannually, issued December 31, 2019		$3,200,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021		2,240,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024		1,600,000


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Assume that Pearl completed the office and warehouse building on December 31, 2020, as planned at a total cost of $8,320,000, and the weighted-average amount of accumulated expenditures was $5,760,000. Compute the avoidable interest on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round final answers to 0 decimal places, e.g. 5,275.)

Avoidable Interest

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Compute the depreciation expense for the year ended December 31, 2021. Pearl 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 $480,000. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation Expense

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