Explore BrainMass

Explore BrainMass

    Classification of Costs and Interest Capitalization: George Solti Corporation

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    On January 1, 2007, George Solti Corporation purchased for $600,000 a tract of land (site number 101) with a building. Solti 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 cost of $54,000.

    Solti entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2007, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2008. Additional construction cost were incurred as follows:

    Plans, specifications, and blueprints $21,000
    Architects' fees for design and supervision 82,000

    The building is estimated to have a 40-year life from date to completion and will be depreciated using the 150% declining balance method.

    To finance construction costs, Solti borrowed $3,000,000 on March 1, 2007. The loan is payable in 10 annual installments of $300,000 plus interest at a rate of 10%. Solti's weighted-average amounts of accumulated building construction expenditures were as follows:

    For the period March 1 to December 31, 2007 $1,200,000
    For the period Jan 1 to Sept. 30, 2008 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, 2008.

    b) Prepare a schedule that discloses the individual cost that should be capitalized in the office building account as of September 30, 2008. Show supporting computations in good form

    (AICPA adapted)

    © BrainMass Inc. brainmass.com June 3, 2020, 8:21 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/classification-of-costs-and-interest-capitalization-george-solti-corporation-133899

    Solution Preview

    (a) George Solti Corporation
    Cost of Land (Site #101)
    As of September 30, 2008
    Cost of land and old building $600,000
    Real estate broker's commission 36,000
    Legal fees 6,000
    Title insurance 18,000
    Removal ...

    Solution Summary

    This solution provides formatted cost of land and cost of building schedules in the attached Word document.

    $2.19

    ADVERTISEMENT