Question

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 $1,040,000. San Antonio paid $320,000 and signed a noninterest-bearing note requiring the company to pay the remaining $720,000 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 $32,000 were paid at closing. During April, the old building was demolished at a cost of $82,000, and an additional $62,000 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 July 30 September 1 October 1 $3,000,000 2,100,000 1,620,000 2,520,000 San Antonio borrowed $5,100,000 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: $3,200,000, 10% long-term note payable $5,200,000, 7% long-term bonds payable

Answer 1

Answors The Snitial value of the various assets it het eene acquired or constructed during the year 2018 : nitial valle de landi @ Present value = present blue annuity x present videre de $1. = $420,000 x: (+0.0812 $720,000 0.88999 -$640793. Purchase price = cash paid & value & note = 320,000 7640,793 =960,793 Determine the initial value of land Tolal valore de land - purchase price + closing costs + removal of old ..: building + clearing and grading = $960,793 € 32,000 + 82.000 +62,000 = $1,136,793

1:. inittial value of land = $1,136,-793. Initial value of fand improvements : parking lot and Sandscaping =f345,000 1: Thic Ornitial value di land improu mints = $345,000] © initial value dr berilding i Defceminc amount os interest capitaliaed, constileccion accumulated Expenditures ) Eaterest. caskstanding food mantly expendetare Cť). may 1, 2018 3,000,000 g 3,000,000 month | Tuly 30, 2016 2.100.000 2,100,000 1050.000 540,000 sepl 1, 2018 1, 620,000. 400,000 116 oct 1, 2018 Average accumulated l expenditure's 2.520,000 1 5010,000 Caprtalized interest - Average acomela-led expenditure x interest reste x nado months in a year 12

= 5,010,000 x- xenon =$150,300 Determine initial value of building --- particulars Amount (k) comebruddism expenditure may, 2018 $3.000,000 July 20, 2018 $2,100.000. sept 1, 2018 1.620.000 Oct 1, 2018 2,520,000 Total Expenditures $9240.000 told i interest capitaliacd. 150,300 Total of berilding $9.0896700 Toitial valle de bailding = 49,089, 100, I @ Equipment iriztial value of equipment = percentage & total fair roleve X Lump-sum prices =($ 615000 GL5,000+ 205.000 X100) X-700.000 =75). *720,000

= 540,000 1 . initial valere de Equipment = $540,000 furniture & fixtures x 720,000 anitial vader d, ferritere'.- (_205,000 x 600 615,000 + 205,000 = 25.). X720,000 =$180,000 . initial furniture & furfanie = $180,000 320,0003 , 200,000 X 16. Particulars Amabund) { calculation note iscud to purchase Land a building 5.1156 1,136, 773 X 67. x to construction, 2000 204,000 5.100,000.x.64 x long-term noten long-term bonds 36 ,000 5 ,200,000 x 7). Total 939,156 bess: interest capitalized 1150.300 Btferest. Exponci *789,856 is amount of interest Expense reported in 2018 income. statement = $788,856