P10-5 (L01,3) (Classification of Costs and Interest Capitalization)

On January 1, 2017, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker's commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing statement indicated that the land value was $500,000 and the building value was $100,000. Shortly after acquisition, the building was razed at a cost of $54,000.

Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2017, for the construction of an of-fice building on land site number 101. The building was completed and occupied on September 30, 2018. Additional construction costs were incurred as follows.

• Plans, specifications, and blueprints - $21,000
• Architects' fees for design and supervision - 82,000

The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining-balance method.

To finance construction costs, Blair borrowed $3,000,000 on March 1, 2017. The loan is payable in 10 annual installments of $300,000 starting on March 1, 2018, plus interest at the rate of 10%. Blair's weighted-average amounts of accumulated building construction expenditures were as follows.

• For the period March 1 to December 31, 2017 - $1,300,000
• For the period January 1 to September 30, 2018 - 1,900,000

Instructions:

(a) Pre a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2018.

(b) Pre a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2018. Show supporting computations in good form.