Reference no: EM132824165

Tri-Harder, Inc, a triathlon training company, purchased a new location on February 1, 20x0. They paid $630,000 in cash for the land, a building containing an indoor swimming pool and a cycling studio, and 20 training bikes. The fair value of the land, the building (including the pool and cycling studio), the bikes is $240,000, $400,000 and $30,000, respectively. In addition to the purchase price, they paid $12,000 in back taxes, $3,000 for demolition of an old shed, $7,000 in attorney fees. The building is to be depreciated based on a 20-year useful life using the straight-line sum of the years digits method and a $100,000 salvage value. The bikes are to be depreciated using the straight-line method triple declining balance, a 4-year useful life and a $2,000 salvage value.

On February 1, 20x0, they also took out a construction loan for $80,000 to be paid in 5-years, with semi-annual interest paid each June 30 and December 31 at a rate of 5%. Bonds of similar risk are yielding 9%. The track begins construction on March 1 and is completed on June 30. Tri-harder makes payments for the track of: $35,000 on March 15th, $60,000 on April 15th, $18,000 on May 30th, and $52,000 on June 30th. Tri-harder has two other outstanding loans during the entirety of 20x0: a $200,000, 8% loan and a $500,000 12% loan. The track is estimated to have an 8-year useful life and is to be depreciated using straight-line and no residual value.

Question 1) Record the purchase of the assets on February 1, 20x0.

Question 2) Record the inception of the note payable on February 1, 20x0.

Question 3) Record the capitalization of interest at the time of the final payment for the track on June 30, 20x0. Include any interest payment at this date using the effective interest method.