Question

Sheridan Landscaping began construction of a new plant on December 1, 2020. On this date, the company purchased a parcel of land for $138,000　in cash. In addition, it paid $2,880　in surveying costs and $4,560　for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,360, with $960　being received from the sale of materials.

Architectural plans were also formalized on December 1, 2020, when the architect was paid $32,400. The necessary building permits costing $3,360　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 in 2021 as follows.

Date of Payment		Amount of Payment
March 1		$253,200
May 1		339,600
July 1		67,200

The building was completed on July 1, 2021.

To finance construction of this plant, Sheridan borrowed $610,800　from the bank on December 1, 2020. Sheridan had no other borrowings. The $610,800　was a　10-year loan bearing interest at　8%.

Compute the balance in each of the following accounts at December 31, 2020, and December 31, 2021.　 (Round answers to 0 decimal places, e.g. 5,275.)

Using Excel calculate the following (show your work and use formulas where appropriate):

1. Balance in the Interest Expense account for December 31, 2020 and December 31, 2021
2. Balance in the Building account for December 31, 2020 and December 31, 2021
3. The amount of interest capitalized in 2018
4. The weighted average of accumulated expenditures for 2021
5. The amount of interest capitalized in 2020
6. The weighted average of accumulated expenditures for 2020
7. Balance in the Land account for December 31, 2020 and December 31, 2021

Answer 1

01-Dec-20
COST OF PURCHASE OF LAND	138000.00
SURVEYING COSTS	2880.00
INSURANCE POLICY	4560.00
ARCHITECT CHARGES	32400.00
BUILDING PERMIT COST	3360.00
OLD PREMISE DEMOLISHIMG COST	3360.00
RECEIPTS FROM SALE OF SCRAP	-960.00
INTEREST (610800*.08*1/12)	4072.00
TOTAL COST ( 31 DEC 2020)	187672.00

01-12-2021
Mar-01	253200.00
May-01	339600.00
Jul-01	67200.00
INTEREST OF 4 MONTHS TO BE CAPATALISED	16288
TOTAL (B)	676288.00
TOTAL COST (A+B)	863960.00

1. Balance in the Interest Expense account

On 31 Dec 2020 - $4072 (610800*8/100*1/12)

On 1 dec 2021 - $ 48864 (610800*8/100)

2. Balance in the Building account for

31 Dec 2020 - $187672

On 1 dec 2021 - $ 863960

3.The amount of interest capitalized in 2018 - NIL , there is no data in the question related to 2018 year.

4. The weighted average of accumulated expenditures for 2021

Total Expenditure in 2021 -  

Mar-01	253200.00
May-01	339600.00
Jul-01	67200.00
TOTAL (B)	660000.00

Weighted Average of

March 01 exp - 0.38 (253200/660000)

May 01 Exp - 0.51 (339600/660000)

July 01 Exp - 0.10 (67200/660000)

The amount of interest capitalized in 2020 -  

INTEREST (610800*.08*1/12) - $4072

01-Dec-20		Weighted average cost
COST OF PURCHASE OF LAND	138000.00	0.75
SURVEYING COSTS	2880.00	0.02
INSURANCE POLICY	4560.00	0.02
ARCHITECT CHARGES	32400.00	0.18
BUILDING PERMIT COST	3360.00	0.02
OLD PREMISE DEMOLISHIMG COST	2400.00	0.01
TOTAL COST (A)	183600.00	1.00

Formula - Specific cost / total cost

The amount of interest capitalized in

2020 - $4072

2021 - $16288

alance in the Land account for

31/12/2020 - nil

31/12/2021 - Nil

Seperate value of land is nil because cost of land will always be included in the total cost of building hence cost of land will be included in the cost of building and there will not be any seperate account of the land in the books of the company.