Question

On January 1, 2021, the Blackstone Corporation purchased a tract of land (site number 11) with a building for $640,000. Additionally, Blackstone paid a real estate broker's commission of $40,000, legal fees of $8,000, and title insurance of $20,000. The closing statement indicated that the land value was $520,000 and the building value was $120,000. Shortly after acquisition, the building was razed at a cost of $79,000.

Blackstone entered into a $3,400,000 fixed-price contract with Barnett Builders, Inc., on March 1, 2021, for the construction of an office building on land site 11. The building was completed and occupied on September 30, 2022. Additional construction costs were incurred as follows:

Plans, specifications, and blueprints	$	16,000
Architects' fees for design and supervision		88,000

To finance the construction cost, Blackstone borrowed $3,400,000 on March 1, 2021. The loan is payable in 10 annual installments of $340,000 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, 2021	$	940,000
For the period January 1 to September 30, 2022		2,500,000

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, 2022.
2. Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2022.

Answer 1

Requirement 1

Land Account

Particulars	Amount ($)
Acquisition cost	640,000
Real estate broker’s commission	40.000
Legal fees	8,000
Title insurance	20,000
Cost of razing building	79,000
Balance of Land as on Sep 30,2022	787,000

Requirement 2

Capitalised cost of office building

Particulars	Amount ($)
Contract Cost	3,400,000
Plans, specifications and blueprint	16,000
Architect fees for design and specification	88,000
Capitalized interest for year 940,000* 12% *10/12	94,000
Capitalized interest for year 2,500,000 * 12% * 9/12	225,000
Total capitalized cost of Building as of Sep 30,2022	3,823,000

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