Problem 3

On January 2, 2018, Parrish Corporation purchased a tract of land (site no. 505) with a building for $2,000,000. Parrish also paid the following fees to complete the purchase:

Real estate broker's commission $75,000

Legal fees                                              25,000

Title insurance                                     40,000

Back taxes (paid to clear a lien)      20,000

 

The closing statement indicated the fair value of the land was $1,700,000 and the building's fair value was $300,000. Immediately after the purchase was finalized, the building was razed for a total cost of $200,000.

On March 1, 2018, Brock entered into a $3,000,000 fixed-price contract with Bob the Builder, Inc. for the construction of an office building on land site #505. The building was completed and occupied on October 31, 2019. Additional construction costs incurred in 2018 are as follows:

Architects fees for building plans and supervision of construction                              $150,000

Construction plans, specifications, blueprints, permits and inspections                     130,000

Parrish borrowed $2,500,00 on March 1, 2018 by issuing a note payable to L$L Financial Institution. The note is payable in 10 annual installments of $250,000 plus interest at a rate of 8%. Parrish's weighted average accumulated expenditures for the construction project were as follows:

March 1 - December 31, 2018                                                                                                    $1,100,000

January 1 - October 31, 2019                                                                                                       2,500,000

Parrish estimates that the building will have a 40-year useful life and a salvage value of $200,000. The building will be depreciated using the DDB method. The building is put into use on November 1, 2019.

Required:

1.      Complete the schedule that shows the individual costs attributed to the Land account (#505).

2.      Complete the schedule the shows the individual costs attributed to the Building account.

3.      Compute depreciation expense for 2019 and 2020 for the Building.