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 $1.180,000. San Antonio paid $390,000 and signed a noninterest-bearing note requiring the company to pay the remaining $790,000 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 $39.000 were paid at closing During April the old building was demolished at a cost of $89.000, and an additional $69.000 was paid to clear and grade the land Construction of a new building began on May and was completed on October 29. Construction expenditures were as follows VOST. PV Of $1. EVALOE $1. PVA O $1. EVADE of Stand PVAD of $(Use appropriate factor(s) from the tables provided.) Hay 1 July 30 September 1 October 54.ase, 2,458, 20 2,940,000 San Antonio borrowed $6,500,000 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: 53, see,ece, 9 $5.08.0 6 lang ten note payable long term bands payable In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for slumpsum price of $790,000. The fair values of the equipment and the furniture and fixtures were 5523,000 and $267.000. respectively in December San Antonio paid a contractor $380,000 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the initial values of the various assets that San Antonio acquired or constructed duriny 2018. The the specific interest method to determine the amount of inter on the building construction Rou answers to the nearest whole dolar Initial Value > Land Land improvements Building Equipment Furniture & fixtures Required 2 >

Answer 1

Part 1

Land	$1290100
Land improvements	$380000
Building	$11673350
Equipment	$545100
Furniture and fixtures	$244900

Purchase price of land:

Cash paid = 390000

Value of note = 703100 (790000*0.89000 (PVIF6%,2yr))

Purchase price of land = $1093100

Land

Purchase price = 1093100

Closing costs = 39000

Removal of old building = 89000

Clearing and grading = 69000

Total cost of land = 1290100

Land improvements

Parking lot and landscaping = 380000

Building

Construction expenditures:

May 1 - 4050000

june 30 - 2450000

september 1 - 2040000

october 1 - 2940000

Total expenditures – 11480000

Interest capitalized - 193350

Total cost of building =11673350

Accumulated expenditures:

May 1 – 4050000 * 6/6 = 4050000

june 30 – 2450000*3/6 = 1225000

september 1 – 2040000*2/6 = 680000

october 1 – 2940000*1/6 = 490000

Interest capitalized = 6445000*6%*6/12 = 193350

Equipment and furniture and fixture

	Fair value	% of total fair value	Initial valuation (790000)
Equipment	623000	69% (623000/900000)	545100	(790000*69%)
Furniture and fixtures	267000	31% (267000/900000)	244900	(790000*31%)
total	900000	100%	790000

Initial valuation:

Equipment = 545100

Furniture and fixtures = 244900

Part 2

Interest expense

$803290

Interest expense:

Note issued to purchase land and buildings (703100*6%*9/12) = 31640

Construction loan (6500000*6%*8/12) = 260000

Long –term note (3900000*9%) = 351000

Long-term bonds (5900000*6%) = 354000

Total =996640

Less: interest capitalized = 193350

Interest expense = $803290