E$10\mathrm{.}7($LO $2)($Capitalization of Interest$)$ Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $$5,000,000$ on January $1,2020.$ Harrisburg expected to complete the building by December $31,2020.$ Harrisburg has the following debt obligations outstanding during the construction period.

Construction loan $12\%$ interest, payable semiannually, issued

December $31,2019$

Short$-$term loan$10\%$ interest, payable monthly, and principal payable at maturity on May $30,2021$

Long$-$term loan$11\%$ interest, payable on January $1$ of each year. Principal payable on January $1,2024$

$$2,000,000$

$1,400,000$

$1,000,000$

Instructions

$($Carry all computations to two decimal places.$)$

a$.$ Assume that Harrisburg completed the office and warehouse building on December $31,2020,$ 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.

b$.$ Compute the depreciation expense for the year ended December $31,2021.$ Harrisburg 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.$