Question

On January 1, 2018, the Blackstone Corporation purchased a tract of land (site number 11) with a building for $690,000. Additionally, Blackstone paid a real estate broker's commission of $45,000, legal fees of $5,500, and title insurance of $22,500. The closing statement indicated that the land value was $545,000 and the building value was $145,000. Shortly after acquisition, the building was razed at a cost of $84,000.

Blackstone entered into a $3,900,000 fixed-price contract with Barnett Builders, Inc., on March 1, 2018, for the construction of an office building on land site 11. The building was completed and occupied on September 30, 2019. Additional construction costs were incurred as follows:

Plans, specifications, and blueprints	$	21,000
Architects' fees for design and supervision		93,000

To finance the construction cost, Blackstone borrowed $3,900,000 on March 1, 2018. The loan is payable in 10 annual installments of $390,000 plus interest at the rate of 12%. Blackstone's average amounts of accumulated building construction expenditures were as follows:

For the period March 1 to December 31, 2018	$	990,000
For the period January 1 to September 30, 2019 (including capitalized interest for 2018)		2,750,000

Required:
1. Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site 11 as of September 30, 2019.
2. Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2019.

Answer 1

1. Schedule that discloses the individual cost making up the balance in the land account in respect of land site 11 as of September 30, 2019:

Particulars	Amount in $	Calculations
Cost of land	545,000
Broker's Commission	35,543	45000*545000/690000
Legal Fees	4,344	5500*545000/690000
Title Insurance	17,772	22500*545000/690000
Total Land value as on September 30,2019	$ 602,659

2. Schedule of individual cost capitalized in the office building as of September 30, 2019:

Particulars	Amount $	Calculations
Purchased cost of Building	145,000
Brokers Commission	9,457	45000*145000/690000
Legal Fees	1,156	5500*145000/690000
Title Insurance	4,728	22500*145000/690000
Razed cost	84,000
Plans, Specifications & Blueprints costs	21,000
Architects fees for design and supervision	93,000
Construction cost from Mar 1 to Dec 31, 2018	990,000
Capitalization of interest from Mar 1 to Dec 31, 2018	49,500
Constuction cost from Jan 1 to Sep 30,2019 (excluding capitalized interest of 2018)	2,700,500	2750000-49500
Capitalization of interest from Jan 1 to Sep 30, 2019 of cost incurred in 2018	89,100
Capitalization of interest from Jan 1 to Sep 30, 2019 of cost incurred in 2019	121,523
Total Building value as on September 30,2019	$ 4,308,964