Question

Pete's Construction acquired new equipment, paid $50,000 down, and signed a 5%, $200,000 note payable. Both the principal and one-year's interest is due one year from the date of purchase. The cost to install the equipment was $4,000; the cost to test it before placing it on-line was $2,000.

Pete's Construction spent $20,000 to train employees on the above new equipment.
Materials, labour and overhead amounted to $400,000 for the construction of a building started and completed in the current year. The building was worth $600,000 at completion and will house the office operations for the company. Total interest cost recognized during the year was $50,000; $35,000 of that amount qualifies to be capitalized to this building. The land on which the building was constructed cost $100,000, also purchased this year.

A second tract of land was acquired as a building site, for $45,000. A second building on this land also was started during the year but not completed. $5,000 was spent for surveying this second land parcel; $30,000 was spent to excavate the foundation of the building; and $8,000 was spent to clear oak trees on the property.

Pete's Construction was assessed $12,000 by the county for sewers and other infrastructure costs for the site of the completed building.

Because there was so much work involved with this project, Pete took his staff out for a celebration lunch for a cost od $1,000.

Required
From the following transaction information for Pete's Construction Inc. for the current year, determine the ending balances for all property, plant and equipment accounts (including construction in progress). Show how you arrived at your answer for each. Ignore amortization, assume there were no beginning balances, and there is no need to show subsidiary accounts or include discussion.

Answer 1

Pete's Construction
Asset Balance atr the end of the year
Assuming no amortization
1. Equipment
Notes payable Value with interest =	$      200,000
Interest @ 5% chargable for a Year
Principal amount of Note =200000/1.05=	$ 190,476.19
Plus Down Paymnet	$   50,000.00
Total Amount paid for Equipment	$ 240,476.19
So Original Cost of Equipment	$ 240,476.19
Add : Installation cost	$     4,000.00
Add : Cost of testing	$     2,000.00
Add: Training cost of new employees	$   20,000.00
Total Capitalized cost of Machine	$ 266,476.19
Balance of Equipment at the Year end=	$ 266,476.19
( the intereston Notes Payable is not considered for Capitalization)
2. Office Building Capitaliazation
Material , Labor & Overhead	$ 400,000.00
Add: Interest eligible for capitalization	$   35,000.00
Charge for Sewers and Other Infrastructure cost	$   12,000.00
Total Capitalized value for Office Building	$ 447,000.00
Balance of office bulding at Year end	$ 447,000.00
3.Purchase cost of Land for Office Building	$ 100,000.00
Balance of Office Building Land at Year end =	$ 100,000.00
4. Second Tract of Land
Purchase cost	$   45,000.00
Add : Cost of cutting Oak trees	$     8,000.00
Total Cost of second tract of land	$   53,000.00
Balance of second tract of Land at Year end =	$   53,000.00
4. Building under construction
Survey cost	$     5,000.00
Excavatiopn cost	$   30,000.00
Total cost of Building under construction	$   35,000.00
Balance of Building under construction at Year end =	$   35,000.00