Reference no: EM131786046
Early in its fiscal year ending December 31, 2013, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on April 30th with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $800,000. San Antonio paid $200,000 and signed a noninterest-bearing note requiring the company to pay the remaining $600,000 on April 30, 2015. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $20,000 were paid at closing.
During April, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows:
San Antonio borrowed $3,000,000 at 8% on May 1 to help finance construction. This loan, plus interest, will be paid in 2014.
In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $600,000 on account. The fair values of the equipment and the furniture and fixtures were $455,000 and $245,000, respectively.
In December, San Antonio paid a contractor $285,000 for the construction of parking lots and for landscaping.
Below is the trial balance for San Antonio Outfitters as of March 31.
SAN ANTONIO OUTFITTERS
Trial Balance March 31, 2013
Debit Credit
Cash .......................................................................................... $3,394,380
Accounts receivable ............................................................... 2,129,500
Prepaid insurance ................................................................... 42,300
Office equipment .................................................................... 119,300
Accumulated Depreciation, Office Equipment .................. $11,750
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Inventory .................................................................................
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2,104,000
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Building ...................................................................................
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100,000
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Land..........................................................................................
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720,000
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Accounts payable ...................................................................
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$ 104,410
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Notespayable..........................................................................
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600,000
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San Antonio, Capital ..............................................................
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2,541,700
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San Antonio, Withdrawals ....................................................
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10,450
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Revenue ...................................................................................
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6,144,100
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Wages expense ........................................................................
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654,500
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Depreciation Expense, Office Equipment ...........................
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4,250
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Equipment rental expense.....................................................
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71,410
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Office Supplies Expense ........................................................
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7,500
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Advertising expense...............................................................
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32,400
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Repairs expense ......................................................................
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11,970
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Totals ........................................................................................
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$9,401,960
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$9,401,960
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Calculation of Purchase price of land Amount
Cash Paid 200000
Value of Note 600000
P.V of note for n = 2 & I =8% 0.85734
P.V of note Payment 514404
Total Purchase Price 714404
Add: Closing costs 20000
Removal cost of Old Building 70000
Clearing & Grading cost of land 50000
Total Value of Land 854404
Building
Average accumulated expenditures;
31-May 1200000 * 5/ 6 1000000
30-Jul 1500000*3/6 750000
1-Sep 900000*2/6 300000
1-Oct 1800000*1/6 300000
Total Average Accumulated expenditure 2350000
Interest capitalized 94000
Total Construction Expenditure 5400000 (1200000+1500000+900000+1800000)
Add Interest Capitalized 94000
Total Cost of Building 5494000
Land Improvements
Parking Lot & Landscaping 285000
Fair value % of fair value Initial valuation
Equipment 455000 65.00% 390000
Furniture & Fixture 245000 35.00% 210000
Total 700000 600000
Interest expense
Note issued to Purchase land & Building 30864 Discount/Interest expense for 2013
Construction Loan 160000 Interest on construction loan for 2013
Total interest 190864
Less Interest capitalized -94000
Interest expense 96864
Where do these categories fit into the spreadsheet provided?