Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $880,000. San Antonio paid $240,000 and signed a noninterest-bearing note requiring the company to pay the remaining $640,000 on March 28, 2020. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $24,000 were paid at closing. During April, the old building was demolished at a cost of $74,000, and an additional $54,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) $1,800,000 May 1 July 30 September 1 October 1 1,700,000 1,140,000 2,040,000 San Antonio borrowed $3,600,000 at 10% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018: $2,400,000, 10% long-term note payable $4,400,000, 7% long-term bonds payable
Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $880,000. San Antonio paid $240,000 and signed a noninterest-bearing note requiring the company to pay the remaining $640,000 on March 28, 2020. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $24,000 were paid at closing. During April, the old building was demolished at a cost of $74,000, and an additional $54,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) $1,800,000 May 1 July 30 September 1 October 1 1,700,000 1,140,000 2,040,000 San Antonio borrowed $3,600,000 at 10% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018: $2,400,000, 10% long-term note payable $4,400,000, 7% long-term bonds payable
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
How much interest expense will San Antonio report in its 2018 income statement?
Transcribed Image Text:Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was
completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased
for $880,000. San Antonio paid $240,000 and signed a noninterest-bearing note requiring the company to pay the remaining
$640,000 on March 28, 2020. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. Title
search, insurance, and other closing costs totaling $24,000 were paid at closing.
During April, the old building was demolished at a cost of $74,000, and an additional $54,000 was paid to clear and grade the land.
Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of
$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
$1,800,000
May 1
July 30
September 1
October 1
1,700,000
1,140,000
2,040,000
San Antonio borrowed $3,600,000 at 10% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The
company also had the following debt outstanding throughout 2018:
$2,400,000, 10% long-term note payable
$4,400,000, 7% long-term bonds payable
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