Question

Problem 10-12 Acquisition costs; lump-sum acquisition; noninterest-bearing note; interest capitalization [LO10-1, 10-2, 10-3, 10-7]

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 $860,000. San Antonio paid $230,000 and signed a noninterest-bearing note requiring the company to pay the remaining $630,000 on March 28, 2020. An interest rate of 6% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $23,000 were paid at closing.
   
During April, the old building was demolished at a cost of $73,000, and an additional $53,000 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.)

May 1	$	1,650,000
July 30		1,650,000
September 1		1,080,000
October 1		1,980,000

San Antonio borrowed $3,400,000 at 6% 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:

$2,300,000, 9% long-term note payable

$4,300,000, 6% long-term bonds payable

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $630,000. The fair values of the equipment and the furniture and fixtures were $511,000 and $219,000, respectively. In December, San Antonio paid a contractor $300,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

1. The BUILDING FIGURE IS WRONG- The rest are correct.

	Assets Initial Value Land $939,694 Land improvements $300,000 Building $6,446,700 Equipment $441,000 Furniture & fixtures $189,000

2, The INTEREST FIGURE IS WRONG-

	Interest expense $539,531

NO PLAGIARISM PLEASE.

Answer 1

Refer the below images for the above asked questions, in a detailed way of solution.

solution : Determine the initial values of the various SAn Antonio acquired lors constructed during company uses specific interest method to the amount of interest capitalized on the assets that 2018 - The determine building Construction in A Land : particulars Purchase price Closing casts Removal of old building clearing ý grading Amant $ 790700 23000 73000 $ 53000 $ 939700 purchase price of lande cash paid Value of note ) $ 230000 & 560700 87-96700 Note); - & present value of note payment a pv=9 630000 x 0.89000 = $560700 * present value of fran-2, 1261. (from table 2 PVF) - Land improvements parking lot and land seaping $300000

* Building : particulars Amoont Construction expenditures : May $ 1650000 July 30 { 1650000 sept 1 # 10 60000 Oct " | 980000 Toral expenditoty (A) & 6360000 Interest capitalized (B) I 94950 Total cost of building (A+B) & 64 54950 Working: calculation of Interest capitalization Average accomulated expenditures : (sin may sa May 1, 2018 $1650000 46/6 = $1650000 Joly 30, 2018 $ 16500004 316 = $825000 september 1, 2018 $ 1080000 x 216 $360000 esctober 1, 2018 198.000 * 116 : $ 330000 (since. Constructen Start on Hay Complets on Chbor $3165000 Interest capitatized $ 3165000 & Gloft/12 = $94950 & Equipment and furniture & tixtures : percent of Total Initial valuation 1.X 630000 particulars Fair value of ar value Equipment Fornitore e fixtures $ 511000 & 249000 $730000 201. 301 $ 448000 $ 189000 1001 - $630000 Torals Initial valuation : Equipment & 441000 Fornitura y $ 189000

☆ How itt much 2018 interest income San Antonio report in expense will Statement ? Amount $25232 $136000 particulars Interest expense Note issued to porchase land & boilding, & 566700x 640 x 9/12 construction loan, 43400000 x 61 x 8112 Long-term note, $2300000491 Long-term bonds, $4300000 x 69. Total Less: - Interest capitalized (determined above) Interest expense- $207000 $258000 $626232 & (94950) $531282