Hart began construction of a new building last year on July 1, 2017. On the day construction was started, the land was appraised at $350,000. It had been purchased 2 years earlier for $200,000. By Dec. 31, 2017 it had spent $600,000 on construction and correctly paid and capitalized interest in the amount of $32,000.
The following added expenditures were made in 2018 prior to completion of the building on September 1, 2018:
Date |
Amount |
Feb. 1, 2018 |
840,000 |
Aug.1, 2018 |
360,000 |
The following 8% annual interest rate construction loans existed in 2018:
Originated |
Repaid |
Amount |
July 1, 2017 |
Nov. 1, 2018 |
500,000 |
Feb. 1, 2018 |
Nov. 1, 2018 |
700,000 |
There were $1,000,000 of other (annualized) loans outstanding during 2017 and 2018 at an average annual interest rate of 5%.
Calculate the annualized construction expenditures for 2018:
Calculate the capitalized interest for 2018:
Indicate the following account balances on December 31, 2018
Land _______________
Building _______________
ANSWER
Calculation of the annualized construction expenditures for 2018:
Dec. 31, 2017 $600,000 *12/12=$600,000
Feb. 1, 2018 $840,000*11/12=$770000
Aug.1, 2018 $360,000*5/12=$150000
Total Expenditure =$1,520,000
Calculate the capitalized interest for 2018:
Capitalized interest =$ 1,520,000*8%
=$121,600
Capitalized interest =$121,600
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Hart began construction of a new building last year on July 1, 2017. On the day...
Hart began construction of a new building last year on July 1, 2017. On the day construction was started, the land was appraised at $350,000. It had been purchased 2 years earfier for $200,000. By Dec. 31, 2017 it had spent $600,000 on construction and correctly paid and capitalized interest in the amount of $32,000. The following added expenditures were made in 2018 prior to completion of the building on September 1, 2018: Date Amount Feb. 1, 2018 Aug.1, 2018...
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