ACCTG 330

MLK Inc. recently purchased land and constructed a new office building. The land was purchased on

February 1 and construction began on March 1. The building was ready to use on June 1. The initial

payment was made to the construction company on March 1, as construction was beginning. The other

payments were made on the 1st of each of the next 3 months, including a final payment after MLK has

moved into the new facility and is sure that are no problems. The initial payment to the construction company was for $13,500,000 and each of the additional

payments was for $3,000,000.

Cost

Purchase of Land $3,750,000

Closing costs $187,500

Attorney fees for closing $93,750

Architect fees for building plans $46,875

Clearing and leveling land $348,750

Building permits and inspection fees $23,438

Avoidable interest on land $225,000

To construct the building, MLK took out a loan of $17,000,000 with an interest rate of 5.0%. The rest of

the funds needed for construction came from MLK's general loan of $4,250,000 with an interest rate of

8.0% or the general note for $6,375,000 with an interest rate of 5.5%.