After years of searching, Saxa Investment group finally found what appeared to be an opportunity to acquire and add value to an 18 unit building. To fund the deal the team determined that initially, they would raise $900,000 in equity. As sponsors, they would invest 10% with the remainder from outside investors. This will take place on January 1 st. The acquisition price for the targeted property totaled $4 million which included $120,000 in closing related costs and attorneys fees. Based on the assessors website $1,250,000 was allocated to the land and the remainder to the building. This will also take place on January 1st . Hawk Bank agreed to fund the project with a 7% non-amortizing senior loan up to 80% LTV. The senior loan was taken out at the same time the property was purchased. After a detailed analysis and consulting with design, engineering, and the GC (General Contractor), Saxa concluded the cap-ex (Capital Expenditures) or value add would cost $1,375,000 and construction would be completed within a month. Hawk Bank also agreed to provide a construction loan at 7% to fund 100% of the construction costs. Assume all the following accounting events took place at the end of year 1. For purposes of this analysis, assume that in year one Saxa was able to achieve a fully stabilized NOI (rent all 18 units of the building for the entire year). The team expected to achieve an average rent monthly rent of $2,000 per unit.

Saxa incurred a number of operating expenses: Insurance Expense - $14,000 unpaid on account Property Taxes Expense - $37,000 paid in cash Management Fees Expense - $19,000 unpaid on account Saxa also incurred interest expense on their two loans at a rate of 7% per year. Treat the interest expense as two separate journal entries. As a multifamily property, the building would be depreciated over 27.5 years. Saxa also determined that it would be prudent to have extra cash (also known as working capital) on hand to conduct standard operations. According to their local expert, 3 months worth of annual expenses was typical for this type of project (this is calculated for you in the Sources and Uses tab and is not an accounting event). Toward the end of the year, Saxa decided to pay off the management fee using cash (that had formerly been on account). REQUIRED: Prepare the following in the order below: 1. Sources and Uses Year 1 2. Journal Entries Year 1 3. Trial Balance Year 1