Instructions

Prepare the entry that should have been made at the date of each acquisition.

E$9\mathrm{.}8($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 $1,2025.$ Harrisburg expected to complete the building by December $31,2025.$ Harrisburg has the following debt obligations outstanding during the construction period.

Construction loan $-12\%$ interest, payable semiannually, issued December $31,2024$

Short$-$term loan$-10\%$ interest, payable monthly, and principal payable at maturity on May $30,2026$

Long$-$term loan$-11\%$ interest, payable on January $1$ of each year; principal payable on January $1,2029$

$$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 $31,2025,$ 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 $31,2026.$ 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.$