Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 3, 2018, HDR Company acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4

On January 3, 2018, HDR Company acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. HDR Company paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2019. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing.

During February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows:

March 30 $ 800,000

June 30 1,200,000

July 30 1,200,000

September 1 600,000

HDR Company did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2018:

$6,000,000, 8% long-term note payable

$2,000,000, 5% long-term note payable

In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping.

Required:

1. Determine the initial values of the various assets that Michelson acquired or constructed during 2018. (Hint: the assets mentioned are listed below: )

a. Land

b. Land Improvements

c. Equipment

d. Furniture and Fixtures

2. How much interest expense will Michelson report in its 2018 income statement?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

EAuditing Fundamentals Virtual Communication And Remote Auditing

Authors: J.P. Russell, Shauna Wilson

1st Edition

0873898486, 978-0873898485

More Books

Students also viewed these Accounting questions