Huffman Corporation constructed a building at a cost of $20,000,000. Weighted-average accumulated expenditures were $8,000,000, actual interest was $800,000, and avoidable interest was $400,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is

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Quizplus · Accepted Answer

The straight-line depreciation method calculates depreciation by subtracting the salvage value from the cost and dividing by the useful life. Here, ($20,000,000 - $1,600,000) / 40 = $460,000. However, since the avoidable interest of $400,000 should be capitalized, the depreciable base becomes $20,400,000. Thus, ($20,400,000 - $1,600,000) / 40 = $470,000.

Huffman Corporation Constructed a Building at a Cost of $20,000,000