On
January 1, 2014, Blair Corporation purchased for $500,000 a tract of land (site
number 101) with a building.
P10-5 (Classification of Costs and Interest
Capitalization) On
January 1, 2014, Blair Corporation purchased for $500,000 a tract of land (site
number 101) with a building. Blair paid a real estate broker’s commission of $36,000,
legal fees of $6,000, and title guarantee insurance of $18,000. The closing
statement indicated that the land value was $500,000 and the building value was
$100,000. Shortly after acquisition, the building was razed at a cost of $54,000
Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders,
Inc. on March 1, 2014, for the construction of an office building on land site
number 101. The building was completed and occupied on September 30, 2015.
Additional construction costs were incurred as follows:
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Plans, specifications, and blueprints
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$21,000
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Architects fees for design and supervision
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$82,000
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The
building is estimated to have a 40 year life from date of completion and will
be depreciated using the 150% declining balance method. To finance construction
costs, Blair borrowed $3,000,000 on March 1, 2014. The loan is payable in 10 annual
installments of $300,000 plus interest at the rate of 10% Blair's
weighted-average amounts of accumulated building construction expenditures were
as follows:
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For the period March 1 to December 31, 2014
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$1,300,000
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For the period January 1 to September 30, 2015
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$1,900,000
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Instructions
(a) Prepare
a schedule that discloses the individual costs making up the balance in the
land account in respect of land site number 101 as of September 30, 2015.
(b) Prepare
a schedule that discloses the individual costs that should be capitalized in
the office building account as of September 30, 2015. Show supporting
computations in good form.
TUTORIAL
PREVIW
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BLAIR
CORPORATION
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Cost of
Land (Site #101)
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As of
September 30, 2015
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Cost of land and old building
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$500,000
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Real estate broker’s commission
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36,000
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Legal fees
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6,000
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