Question
1) determine the Historical Cost of the building after taking into consideration the capitalization of interest. 2) determine the Interest Expense that Desert would report
1) determine the Historical Cost of the building after taking into consideration the capitalization of interest.
2) determine the Interest Expense that Desert would report on their Income Statement for the year ended December 31, 2018.
3) assume instead that Desert's only other outstanding debt during 2018 was a $450,000, 9%, three year note (i.e. all other information remains unchanged but Desert no longer has $3,000,000 of other non-specific borrowings; only $450,000 of non-specific debt).
Determine the Avoidable Interest from this construction project under this scenario.
Early in 2018, Desert, Co. finalized plans to expand operations. The first stage was completed on January 19th with the purchase of a tract of land to be used as the location for their new office complex. The land and existing building were purchased for $850,000, paying cash. Title search, title insurance, back property taxes and other closing costs totaling $20,000 were paid at closing During February, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Salvaged materials from the demolished building were sold for proceeds of $20,000. Construction of the new office complex began on March 1 and was completed on November 30, 2018. Construction expenditures paid to sub-contractors were made as follows March 1 900,000 June 1 S1,200,000 Sept 1 S1,500,000 Nov1 S1,800,000 Desert borrowed a $2,100,000, 8%, 2-year note on February 1st to help finance construction. Interest will be paid annually. The company's only other outstanding debt during all of 2018 was a $3,000,000, 996, 10-year note payableStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started