Construction on A Building on The Purchased Land Case Assignment
On January 1, 2020, x began construction on a building on the purchased land. The construction was completed on December 31, 2040. Expenditures for construction were: $2,000,000 on January 1, $800,000 on April 1, $600,000 on June 1, $750,000 on September 1 and $600,000 on December 31. To pay for the construction, x borrowed $3,000,000 from a local bank on January 1. The $3,000,000 note represents a 10-year loan agreement with an annual interest rate of 7%. The only other loans that x has outstanding are the Note Payable and Bond Payable recorded on the trial balance (above). Record the January, April, June, September, and December construction expenditures separately. In a separate journal entry, record the new construction notes payable initiated on January 1. In addition, calculate the weighted average expenditures, avoidable interest and actual interest to determine the amount of interest that must be capitalized for the year. Assume that x\’s actual interest was paid on December 31, and make the journal entry to record the interest on that date.
For the building that began construction on January 1, 2020, the building will need to be decommissioned on January 1, 2020 for an expected cost of $3,000,000. x’s annual borrowing costs are 6% and the present value of $1 in 20 years is $0.3118. Record the entry related to the asset retirement obligation entries for both January 1 and December 31.
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