P10-6 (Interest During Construction) Greg Landscaping began construction of a ne

Question

P10-6 (Interest During Construction) Greg Landscaping began construction of a new plant on December 1, 2012. On this date, the company purchased a parcel of land for $139,000 in cash. In addition, it paid $2,000 in surveying costs and $4,000 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,000, with $1,000 being received from the sale of materials Architectural plans were also formalized on December 1, 2012, when the architect was paid $30,000. The necessary building permits costing $3,000 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 as follows. Date of Payment March 1 May 1 July 1 Amount of Payment $240,000 330,000 60,000 The building was completed on July 1, 2013 To finance construction of this plant, Grieg borrowed $600,000 from the bank on December 1, 2012. Grieg had no other borrowings. The $600,000 was a 10-year loan bearing interest at 8%. Instructions Compute the balance in each of the following accounts at December 31, 2012, and December 31, 2013. (Round amounts to the nearest dollar.) (a) Land (b) Buildings. (c) Interest Expense

Explanation / Answer

Amountg ($) 1st December 2012 As On 31St Dec 2012 As On 31St Dec 2013 a) Value of the Land Opening                         145,000 Dec-01 Amount paid in Cash                         139,000 Surveying Costs                            2,000 Title Insurance                            4,000 Depriciation                                 -   0 Closing Balance                         145,000                         145,000 b) Value of the Building As On 31St Dec 2012 As On 31St Dec 2013 Openng Balance                                         -                             35,000 Dec-01 Architectural Plans                           30,000 Building Permits                            3,000 Net Amount paid from Demolishing Old Building                            2,000 Amount Paid for Construction                         630,000 Interest Capitalized                           32,000 Closing Balance                               35,000                            697,000 c) Interest Expense Amount ($) Amount of loan Borrowed                         600,000                            4,000 600000 Dec-01 10 Years Interest for 1 Month Payable                            4,000                           48,000 Interest for 7 Months Payable                                 4,000                               52,000 Notes : 1 It is assumed that Interest for 2012 not paid and pending in addition to 2013 2 All the registration expenses to land has been Capitalized 3 Like land , for Building also capitalized the all the expenses including Interest on loan up to date of completion of construction 4 Ignored the depreciation on building for 2 years 5 Included the old building demolishing exp in Building Value

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