Assume that Martinez completed the office and warehouse building on December 31, 2020, as planned at a total cost of $14,560,000, and the weighted-average amount of accumulated expenditures was $10,080,000. Compute the avoidable

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1. Avoidable interest on construction loan = $6,000,000 * 12% = $672,000

 Calculation of weighted average interest rate on general loan

Loan                      Amount      Interest rate   Interest (Amount*rate)

Short term loan   3,920,000           10%                  392,000

Long term loan    2,800,000            11%                  308,000

Total                     6,720,000                                    700,000

Weighted average interest rate = 700,000 / 6,720,000

Weighted average interest rate =0.10416667

Weighted average interest rate = 10.42%

Avoidable interest on remaining expenditure = ($10,080,000 - $5,600,000) * 10.42%

Avoidable interest on remaining expenditure = $4480000 * 10.42%

Avoidable interest on remaining expenditure = $466,816

Total avoidable interest = $672,000 + $466,816

Total avoidable interest = $1,138,816

2. Total cost of building capitalized = $14,560,000 + $$1,138,816

Total cost of building capitalized = $15,698,816

Depreciation expenses = Cost - Salvage value / Useful life

Depreciation expenses = $15,698,816 - $840,000 / 30 years

Depreciation expenses = $14,858,816 / 30 years

Depreciation expenses = $495293.86667

Depreciation expenses = $495,293.87

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