classification of costs and interest capitalization 457348

P10 5 (Classification of Costs and Interest Capitalization) On January 1, 2012, Blair Corporation

purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker’s

commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing statement

indicated that the land value was $500,000 and the building value was $100,000. Shortly after acquisition,

the building was razed at a cost of $54,000.

Blair entered into a $3,000,000 fixed price contract with Slatkin Builders, Inc. on March 1, 2012, for the

construction of an office building on land site number 101. The building was completed and occupied on

September 30, 2013. Additional construction costs were incurred as follows.

Plans, specii cations, and blueprints $21,000

Architects’ fees for design and supervision 82,000

The building is estimated to have a 40 year life from date of completion and will be depreciated using the

150% declining balance method.

To finance construction costs, Blair borrowed $3,000,000 on March 1, 2012. The loan is payable in

10 annual installments of $300,000 plus interest at the rate of 10%. Blair’s weighted average amounts of

accumulated building construction expenditures were as follows.

For the period March 1 to December 31, 2012 $1,300,000

For the period January 1 to September 30, 2013 1,900,000

Instructions

(a) Prepare a schedule that discloses the individual costs making up the balance in the land account in

respect of land site number 101 as of September 30, 2013.

(b) Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2013. Show supporting computations in good form.