On 6/1/2010 Vandalay Industries began the process of constructing a new factory by purchasing land and the building sitting on the land for a total of $2,000,000. The fair value of the land at that time was $1,600,000 and the fair value of the building was $500,000. Vandalay paid Wreck It Ralph $50,000 to tear down the building. Vandalay Industries took out a construction loan to finance the construction of the new building on 9/1/2010 in the amount of $5,000,000. The interest rate on this loan was 12%. They also had other debt outstanding as follows: Long term bank loan $4,000,000 @ 11% Corporate bond issuance $6,000,000 @ 6% On the same day, 9/1/2010, construction began. The building was ultimately finished and ready for use on 3/31/2012. The timing of construction expenses is as follows: Date Expense 9/1/2010 $1,350,000

11/1/2010. $1,600,000

12/31/2010. $1,500,000

4/1/2011. $3,000,000

10/1/2011. $856,000

2/1/2012 $2,022,000

Total $10,328,000

Determine the initial value that will be recorded on the balance sheet of Vandalay Industries for the building. Please write down the detailed calculation process. I'm confused about the result.