Reference no: EM132773585

Question - Capitalization of interest - On January 1, 2020, Atlantic Corporation purchased for $600,000 a tract of land (site Z) with a building. Atlantic paid a real estate broker's commission of $36,000, legal fees of $4,000, and title guarantee insurance of $12,000. The closing statement indicated that the land value was $520,000 and the building value was $130,000. Shortly after acquisition, the building was razed at a cost of $26,000. Atlantic entered into a $5,000,000 fixed-price contract with Pacific Builders, Inc. on April 1, 2020, for the construction of an office building on land site Z. The building was completed and occupied on December 31, 2021. Additional construction costs were incurred as follows

Plans, specifications, and blueprints $16,000

Architects' fees for design and supervision 64,000

The building is estimated to have a 40-year life from date of completion and will be depreciated using the 200% declining balance method.

To finance construction costs, Atlantic borrowed $5,000,000 on April 1, 2020. The loan is payable in 5 annual installments of $1,000,000 plus interest at the rate of 8%. Atlantic's weighted-average amounts of accumulated building construction expenditures were as follows

For the period April 1 to December 31, 2020 $1,800,000

For the period January 1 to December 31, 2021 2,300,000

Instructions -

(a) Provide a schedule that discloses the individual costs making up the balance in the land account in respect of land site Z as of December 31, 2021.

(b) Provide a schedule that discloses the individual costs that should be capitalized in the office building account as of December 31, 2021. Show supporting computations in good form.