QUESTION 1

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS:

Early in 2016, Sparky, Inc. finalized plans to expand operations. The first stage was completed on January 29th with the purchase of a tract of land to be used as the location for their new office complex. The land and existing structure were purchased for $800,000, paying cash. Title search, title insurance, back property taxes and other legal fees totaling $20,000 were paid at closing.

During February, the old structure was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Salvaged materials from the demolished building were sold for cash proceeds of $10,000.

Construction of the new office complex began on March 1 and was completed on November 30, 2016. Construction expenditures paid to sub-contractors were made as follows:

March 1	$ 900,000
June 1	$1,200,000
Sept 1	$1,500,000
Nov 1	$1,800,000

Sparky borrowed a $2,100,000, 8%, 2-year note on February 1st to help finance construction. Interest will be paid annually. The company's only other outstanding debt during all of 2016 was a $3,000,000, 9%, 10-year note payable, with interest being paid annually.

When the building was complete, Sparky purchased Office Equipment for $220,000, terms 2/10, n/30. In addition, Sparky paid for shipping to get the equipment delivered at a cost of $800, and installation at a cost of $1,200. During installation, it was determined that the electrical wiring in the room within the building that will house the new equipment was not adequate to support its functionality, and had to be re-wired at a cost of $1,500.

a. Determine the original cost of the Land: $[Blank_1]

1.25 points

QUESTION 2

Using the information presented in #1 above, determine the Historical Cost of the building after taking into consideration the capitalization of interest: $[Blank_2]

1.25 points

QUESTION 3

Using the information presented in #1 above, determine what Sparky should record as the original cost of the Office Equipment: $ [Blank_1]

1.25 points

QUESTION 4

Using the information presented in #1 above, determine Interest Expense that Sparky would report on their Income Statement for the year ended December 31, 2016. $[Blank_5]

1.25 points

QUESTION 5

Using the information in #1 above, assume instead that Sparky's only other outstanding debt during 2016 was a $150,000, 9%, three year note (i.e. all other information remains unchanged but Sparky no longer has $3,000,000 of other non-specific borrowings; only $150,000 of non-specific debt). Determine Avoidable Interest for this construction project under this scenario. $[Blank_6]