In: Accounting
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: