Problem 10-07 (Part Level Submission) Sage Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Sage since 2015. Sage' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Sage now carries CDs in addition to books. On June 1, 2020, Sage contracted with Black Construction to have a new building constructed for $5,120,000 on land owned by Sage. The payments made by Sage to Black Construction are shown in the schedule below. Date July 30, 2020 January 30, 2021 May 30, 2021 Total payments Amount $1,152,000 1,920,000 2,048,000 $5,120,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Sage had no new borrowings directly associated wi the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,560,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $3,840,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of xpensing the interest, is material. Problem 10-07 (Part Level Submission) Sage Inc. is a book distributor that had been operating in its original facility since 1990. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Sage since 2015. Sage' original facility became obsolete by early 2020 because of the increased sales volume and the fact that Sage now carries CDs in addition to books. On June 1, 2020, Sage contracted with Black Construction to have a new building constructed for $5,120,000 on land owned by Sage. The payments made by Sage to Black Construction are shown in the schedule below. Date July 30, 2020 January 30, 2021 May 30, 2021 Total payments Amount $1,152,000 1,920,000 2,048,000 $5,120,000 Construction was completed and the building was ready for occupancy on May 27, 2021. Sage had no new borrowings directly associated wi the new building but had the following debt outstanding at May 31, 2021, the end of its fiscal year. 10%, 5-year note payable of $2,560,000, dated April 1, 2017, with interest payable annually on April 1. 12%, 10-year bond issue of $3,840,000 sold at par on June 30, 2013, with interest payable annually on June 30. The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of xpensing the interest, is material
