(Classification of Costs and Interest Capitalization) On January 1, 2017, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker’s commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing statement indicated that the land value was $500,000 and the buildingvalue was $100,000. Shortly after acquisition, the building was razed at a cost of $54,000.Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2017, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2018. Additional construction costs were incurred as follows. Plans, specifications, and blueprints: $21,000Architects’ fees for design and supervision: 82,000 The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining balance method.To finance construction costs, Blair borrowed $3,000,000 on March 1, 2017. The loan is payable in 10 annual installments of $300,000 starting on March 1, 2018, plus interest at the rate of 10%. Blair’s weighted-average amounts of accumulated building construction expenditures were as follows. For the period March 1 to December 31, 2017 : $1,300,000For the period January 1 to September 30, 2018 : 1,900,000 Instructions(a) Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2018.(b) Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2018. Show supporting computations in good form.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
(Classification of Costs and Interest Capitalization) On January 1, 2017, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker’s commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing statement indicated that the land value was $500,000 and the building
value was $100,000. Shortly after acquisition, the building was razed at a cost of $54,000.
Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2017, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2018. Additional construction costs were incurred as follows.
Plans, specifications, and blueprints: $21,000
Architects’ fees for design and supervision: 82,000
The building is estimated to have a 40-year life from date of completion and will be
To finance construction costs, Blair borrowed $3,000,000 on March 1, 2017. The loan is payable in 10 annual installments of $300,000 starting on March 1, 2018, plus interest at the rate of 10%. Blair’s weighted-average amounts of accumulated building construction expenditures were as follows.
For the period March 1 to December 31, 2017 : $1,300,000
For the period January 1 to September 30, 2018 : 1,900,000
Instructions
(a) Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2018.
(b) Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2018. Show supporting computations in good form.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
