Waterway Landscaping began construction of a new plant on December 1, 2017. On t

Question

Waterway Landscaping began construction of a new plant on December 1, 2017. On this date, the company purchased a parcel of land for $145,200 in cash. In addition, it paid $1,920 in surveying costs and $4,080 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,360, with $1,200 being received from the sale of materials. Architectural plans were also formalized on December 1, 2017, when the architect was paid $38,400. 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. Amount of Payment Date of Payment March 1 May 1 July 1 $244,800 337,200 61,200 The building was completed on July 1, 2018. To finance construction of this plant, Waterway borrowed $602,400 from the bank on December 1, 2017. Waterway had no other borrowings. The $602,400 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 o decimal places, e.g. 5,275.) December 31, 2017 December 31, 2018 (a) Balance in Land Account (b) Balance in Building (c) Balance in Interest Expense

Explanation / Answer

Computation of Balance in Land Account as on31 Dec 2017 Calculation of Interest Expense cpaitalized as on 1st July 2018 Particular Amount Date Nature of Expense Cash Outflow No. of Month Interest Interest Expense Purchase price of Land $145,200 Balance in Land as Dec31,2017 $153,360 7 $8,946 Survey Cost $1,920 01/12/2017 Architect Fees $38,400 7 $2,240 Title Insurance Policy $4,080 01/12/2017 Buiding Permit Cost $3,360 7 $196 Cost of demolishing old dwelling $3,360 01/03/2018 Payment to Contractor $244,800 4 $8,160 Less: Sale of Material -$1,200 01/05/2018 Payment to Contractor $337,200 2 $5,620 Balance in Land as on Dec 31,2018 $153,360 01/07/2018 Payment to Contractor $61,200 0 $0 Total $838,320 $25,162 Calculation of Balance in Building as on 31 Dec 2018 Particular Amount Balance of Interest expense in Dec 2017 and Dec 2018 Architect Fees $38,400 Particular Amount Building Permit Cost $3,360 Actual Interest Expense for 2017 ($602400*10%*1/12) $5,020 Payment made to contractor Less: Interest Expense Capitalised for 2017 ($153360+$38400+$3360)*10%*1/12 -$1,626 Mar-01 $244,800 Balance in Interest Expense as on Dec 31,2017 $3,394 May-01 $337,200 Jul-01 $61,200 Actual Interest Expensefor 2018 ($602400*10%) $60,240 Interest Expense Capitalisation as on 1St Jul 2018 ( Refer Working Note) $25,162 Less: Interest expense capitalised for 2018 ($25162-$1626) -$23,536 Balance in Building as on Dec 31,2018 $710,122 Balance in Interest Expense as on Dec 31,2018 $36,704

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