TB Problem 10-183 (Static) On January 3, 2021, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2022. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing. At the end of February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows: March 30 June 30 July 30 September 1 Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2021: $6,000,000, 8% long-term note payable $2,000,000, 5% long-term note payable $ 800,000 1,200,000 1,200,000 600,000 In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping. (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. Round other intermediate calculations to the nearest whole dollar. Enter your answers in whole dollars.) Required: 1. Determine the initial values of the various assets that Michelson acquired or constructed during 2021. 2. How much interest expense will Michelson report in its 2021 income statement? 1. 2. Answer is complete but not entirely correct. Land Land improvements Building Equipment Furniture & fixtures Interest expense Initial Values $ 2,390,880✔ IS 340,000✔ $ $ $ $ 3,891,833 x 480,000✔ 320,000 610,449

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Subject: 

TB Problem 10-183 (Static)
On January 3, 2021, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were
purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the
remaining $2,000,000 on December 31, 2022. An interest rate of 7% properly reflects the time value of money for this type of loan
agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing.
At the end of February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade
the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as
follows:
March 30
June 30
July 30
September 1
Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2021:
$6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable
$ 800,000
1,200,000
1,200,000
600,000
In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of
the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for
the construction of parking lots and landscaping. (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. Round other intermediate calculations to the nearest whole dollar. Enter your
answers in whole dollars.)
Required:
1. Determine the initial values of the various assets that Michelson acquired or constructed during 2021.
2. How much interest expense will Michelson report in its 2021 income statement?
1.
2.
Answer is complete but not entirely correct.
Initial
Values
$ 2,390,880
$ 340,000
$ 3,891,833
S
480,000
$
320,000
$ 610,449
Land
Land improvements
Building
Equipment
Furniture & fixtures.
Interest expense
Transcribed Image Text:TB Problem 10-183 (Static) On January 3, 2021, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2022. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing. At the end of February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows: March 30 June 30 July 30 September 1 Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2021: $6,000,000, 8% long-term note payable $2,000,000, 5% long-term note payable $ 800,000 1,200,000 1,200,000 600,000 In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping. (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. Round other intermediate calculations to the nearest whole dollar. Enter your answers in whole dollars.) Required: 1. Determine the initial values of the various assets that Michelson acquired or constructed during 2021. 2. How much interest expense will Michelson report in its 2021 income statement? 1. 2. Answer is complete but not entirely correct. Initial Values $ 2,390,880 $ 340,000 $ 3,891,833 S 480,000 $ 320,000 $ 610,449 Land Land improvements Building Equipment Furniture & fixtures. Interest expense
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Accounting for Borrowing costs
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education