Hart began construction of a new building last year on July 1, 2013. On the day

Question

Hart began construction of a new building last year on July 1, 2013. On the day construction was started, the land was appraised at $350,000. It had been purchased 2 years earlier for $200,000. By Dec. 31, 2013 it had spent $900,000 on construction and correctly paid and capitalized interest in the amount of $40,000 on annualized expenditures of $600,000. The following added expenditures were made in 2014 prior to completion of the building on September 1, 2014: Date Amount Feb. 1, 2014 840,000 Aug.1, 2014 360,000 The following 7% annual interest rate construction loans existed in 2014: Originated Repaid Amount July 1, 2013 Nov. 1, 2014 480,000 Feb. 1, 2014 Nov. 1, 2014 700,000 There were $500,000 of other general (annualized) loans outstanding during 2013 and 2014 at an average annual interest rate of 5%. Calculate the annualized construction expenditures for 2014: Calculate the capitalized interest for 2014: Indicate the following account balances on December 31, 2014 Land _______________ Building _______________

Explanation / Answer

Ans-

Annualized construction expenditures for 2014

Capitalised interest $40000

Aunnulised expenditures $600000

Expenditures on 1st feb $840000

Expenditures on 1st Aug $700000

Interest on exist loan $82600

(7% on 480000+700000)

Interest on loan (5% on 500000) $25000

Total 2287600

Calculate the capitalized interest for 2014

Interest to be capitalized (7% on 480000+700000)=$82600

Land balance as on 31st dec 2014 (350000+37500)$387500

Buliding balance as on 31st dec 2014 (387500+2287600)$2675100

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