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In: Accounting

UVW began construction of a new office building on March 1, Y1. On the day construction...

  1. UVW began construction of a new office building on March 1, Y1. On the day construction began, UVW borrowed $240,000 at 7% and immediately spent it on the project. An additional payment of $60,000 was also made on the day construction began. Additional expenditures of $75,000 were made on May 1 and August 31. Construction was complete and the building was placed in service on December 31, Y1. In addition to the $240,000 borrowed to finance the project, UVW also has $2,000,000 of other debt at 5% outstanding for the entire year.

    What is the balance in the building account on the December 31, Y1 balance sheet?

    230,250

    8,750

    345,250

    20,250

    21,050

    None of the other answer choices is correct.

    470,250

    471,050

    564,000

    450,000

Solutions

Expert Solution

Capitalizable value of asset:
Date Particulars Amount
Mar-01 Construction Cost $    2,40,000.00
Mar-01 Construction Cost $       60,000.00
May-01 Construction Cost $       75,000.00
Aug-31 Construction Cost $       75,000.00
Interest (WN.-1) $       20,250.00
Capitalizable value of asset $   4,70,250.00
working notes 1:
Computation of Interest to be capitalized:
Date Amount of Loan Interest
Mar-01 $ 2,40,000.00 $ 14,000.00 ($ 240,000 * 7.00% * 10/12)
Mar-01 $     60,000.00 $ 2,500.00 ($ 60,000 * 5.00% * 10/12)
May-01 $     75,000.00 $ 2,500.00 ($ 75,000 * 5.00% * 8/12)
Aug-31 $     75,000.00 $ 1,250.00 ($ 75,000 * 5.00% * 4/12)
Interest to be capitalized $ 20,250.00
THREFORE THE ANSWER IS $470250

ekkarill92 answered 1 year ago
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