Page 18 of 20 TAKEHOME PROBLEM SET 2 CHAPTERS 6 THROUGH 10 P

Page 18 of 20 TAKE-HOME PROBLEM SET #2: CHAPTERS 6 THROUGH 10 Problem #7: Plant Assets (44 points) 1. On July 1, 2018, Ingalls Impending Disaster Inc. purchased land and a factory building at a total cost of $9,200,000. Prior to the purchase, the land and factory building were appraised at values of $500,000 and $9,500,000, respectively During July, Ingalls Impending Disaster Inc. began construction on a warehouse on the land adjacent to the factory building. The company completed the new warehouse in November 2018 and Incurred the following costs related to its construction: Cost to remove debris from construction area Proceeds from scrap of debris material Cost to level and grade land in construction area Architect and design fees Construction materials and labor used Avoidable interest during construction period Actual interest during construction period $12,000 2,500 19,600 8,400 575,000 9,800 8,100 a ks parking iotis antd rondw aviso inche30f costs during 2018 to construct nevw Determine the historic costs of the land, factory building, warehouse, and land improvements recognized by Ingalls Impending Disaster Inc. during 2018. (16 points) Your Answers Land Land Improvements Factory Building Warehouse SUPPORTING CALCULATIONS:

Solution

Based on appraised value,

Cost attributed to land=500000/(500000+9500000)=0.05

Cost attributed to Factory building =9500000/(500000+95000000=0.95

So Cost of Land : $9,200,000X 0.05 = $460,000

Cost of Building : $9,200,000 X 0.95 = $8,740,000

Cost of Warehouse: ($12,000 + 19,600 + 8,400 + $575,000 +$ 8,100**) - $2,500 = $620,600

Note: **The interest cost to be capitalized is the avoidable interest or the actual interest, whichever is less. So here actual interest is less.

Land Improvement : $36,750(Cost of construction of sidewalks,parking lot and roadways on the property)