Question

broadway hotel inc a clendar year corporation purchased land on which to build a small resort in los gatos. the land was purchased on 12-1-10 for 255000. (which included the price of a small shed of the property, 33500, which was torn down in December at a cost of 5000. the company began to build the resort on 12-1-10 paying 852000 to a contractor. further payments to the contractor were on 7-1-11 for 650000 and on 9-1-11 for 710000. on 12-1-11 the resort was ready to be rented out, but the company merely began to advertise the resort and found only a few paying customers to rent it to in 2011. during 2010, the Company had borrowed 3800000 at 8% on 1-1-10 (maturing 2022) specifically for this building project. the company also had a long term bond for 2000000 (liability) on its books from 2006, and due in 2017, which it was paying 9% interest but no other long term liabilities. what is the book value of the land? what is the book value of the building on 12-1-11?

Answer 1

Costs of Land = $25,500+$ 5000= $30,500

Costs of Building=

Date	Expenditure	Period	Weighted average accumulated Expenditure
1/12/2010	852,000	12/12	$                              852,000
1/7/2011	650,000	5/12	270,833
1/9/2011	710,000	3/12	177,500
			1,300,333
Interest Cost to Capitalise (1300,333*8%)			$                              104,027
Total Cost of building as on 1/12/11			$                          2,316,027