Culver Landscaping began construction of a new plant on December 1, 2017. On thi
ID: 2413130 • Letter: C
Question
Culver Landscaping began construction of a new plant on December 1, 2017. On this date, the company purchased a parcel of land for $148,800 in cash. In addition, it paid $1,920 in surveying costs and $3,840 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,360, with $960 being received from the sale of materials.
Architectural plans were also formalized on December 1, 2017, when the architect was paid $39,600. The necessary building permits costing $3,360 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2018 as follows.
Date of Payment
Amount of Payment
The building was completed on July 1, 2018.
To finance construction of this plant, Culver borrowed $607,200 from the bank on December 1, 2017. Culver had no other borrowings. The $607,200 was a 10-year loan bearing interest at 10%.
Compute the balance in each of the following accounts at December 31, 2017, and December 31, 2018. (Round answers to 0 decimal places, e.g. 5,275.)
Date of Payment
Amount of Payment
March 1 $259,200 May 1 333,600 July 1 61,200Explanation / Answer
a) Balance in Land Account = Purchase cost+Surveying cost+Insurance+Demolishing cost-Sale of materials
= $148,800+$1,920+$3,840+$3,360-$960 = $156,960
Balance in land account will be same on December 31, 2017 and December 31, 2018 = $156,960
b) Balance in Buliding on Dec. 31, 2017 = Architect fees+Building permits+Interest Capitalized
Interest to be capitalized for 2017 = (Balance in land account+Architect fees+Building permits)*9%*1/12
= ($156,960+$39,600+$3,360)*10%*1/12 = $1,666
Balance in Buliding on Dec. 31, 2017 = $39,600+$3,360+$1,666 = $44,626
Calculation of Interest capitalized for 2018 (Amounts in $)
Interest to be capitalized for 2018 = $24,196
Balance in Buliding on Dec. 31, 2018 = Opening balance+Payments made in 2018+Interest capitalized 2018
= $44,626+($259,200+$333,600+$61,200)+$24,196 = $722,822
c) Balance in Interest expense = Interest Expense for 2017 - Interest capitalized in 2017
= ($607,200*10%*1/12) - $1,666
= $5,060 - $1,666 = $3,394
Balance in interest expense for 2018 = Interest Expense for 2018 - Interest capitalized in 2018
= $60,720 - $24,196 = $36,524
Date Weighted Average Exp. Avoidable Interest Actual Interest Prior year ($199,920*6/12) = $99,960 March 1 ($259,200*4/12) = $86,400 May 1 ($333,600*2/12) = $55,600 July 1 ($61,200*0/12) = $0 Total $241,960 ($241,960*10%) = $24,196 ($607,200*10%) = $60,720Related Questions
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