Waterway Landscaping began construction of a new plant on December 1, 2017. On t
ID: 2547683 • Letter: W
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 $1,92o in surveying costs and $4,080 for a title insurance policy. An ol dwelling on the premises was demolished at a cost of 3 3 . it ·31 00 b in 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 153360 153360 3394Explanation / Answer
a) Balance in Land Account = Purchase cost+Surveying cost+Insurance+Demolishing cost-Sale of materials
= $145,200+$1,920+$4,080+$3,360-$1,200 = $153,360
Balance in land account will be same on December 31, 2017 and December 31, 2018 = $153,360
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
= ($153,360+$38,400+$3,360)*10%*1/12 = $1,626
Balance in Buliding on Dec. 31, 2017 = $38,400+$3,360+$1,626 = $43,386
Calculation of Interest capitalized for 2018 (Amounts in $)
Interest to be capitalized for 2018 = $23,536
Balance in Buliding on Dec. 31, 2018 = Opening balance+Payments made in 2018+Interest capitalized 2018
= $43,386+($244,800+$337,200+$61,200)+$23,536 = $710,122
c) Balance in Interest expense = Interest Expense for 2017 - Interest capitalized in 2017
= ($602,400*10%*1/12) - $1,626
= $5,020 - $1,626 = $3,394
Balance in interest expense for 2018 = Interest Expense for 2018 - Interest capitalized in 2018
= $60,240 - $23,536 = $36,704
Date Weighted Average Exp. Avoidable Interest Actual Interest Prior year ($195,120*6/12) = $97,560 March 1 ($244,800*4/12) = $81,600 May 1 ($337,200*2/12) = $56,200 July 1 ($61,200*0/12) = $0 Total $235,360 ($235,360*10%) = $23,536 ($602,400*10%) = $60,240Related Questions
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