Early in $2014,$ Sparky, Inc. finalized plans to expand operations. The first stage was completed on January $29$th 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 $$800,000,$ paying cash. Title search, title insurance, back property taxes and other closing costs totaling $$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 $$10,000.$ Construction of the new office complex began on March $1$ and was completed on November $30,2014.$ Construction expenditures paid to sub$-$contractors were made as follows:

March $1$ $ $900,000$

June $1$ $$1,200,000$

Sept $1$ $$1,500,000$

Nov $1$ $$1,800,000$

Sparky borrowed a $$2,100,000,8\%,2-$year note on February $1$st to help finance construction. Interest will be paid annually. The company's only other outstanding debt during all of $2014$ was a $$3,000,000,9\%,10-$year note payable.

In December, the company purchased equipment and furniture for a lump$-$sum price of $$600,000.$ The fair values of the equipment and furniture were $$455,000$ and $$245,000,$ respectively.

 

 

a$.$  Determine the original cost of the Land.

b$.$ determine the Historical Cost of the building after taking into consideration the capitalization of interest:

c$.$ determine Interst Expense that Sparky would report on their Income Statement for the year ended December $31,2014.$

d$.$ assume instead that Sparky's only other outstanding debt during $2014$ was a $$150,000,9\%,$ three year note $($i$.$e$.$ all other information remains unchanged but Sparky no longer has $$3,000,000$ of other non$-$specific borrowings; only $$150,000$ of non$-$specific debt$).$ Determine the Avoidable Interest from this construction project under this scenario.

e$.$ determine the historical cost that should be established on Sparky's Balance Sheet for the Equipment

f$.$ determine the Historical Cost that should be allocated to the Furniture: $($Round to the nearest dollar$)$