Reference no: EM132565546

Question 1 - Early in 20x1, Sparky, Inc. finalized plans to expand operations.

Construction of the new office building began on February 1 and was completed on December 31, 20x1. Construction expenditures paid to sub-contractors were made according to the table below. The first expenditure made on Feb 1 included land costs of $200,000.

Feb 1 $900,000

May 1 $1,200,000

Aug 1 $1,500,000

Nov 1 $750,000

Dec 31 $500,000

Sparky borrowed a $2,100,000, 8%, 2-year note on February 1st to help finance construction. Interest will be paid annually. The company's only other outstanding debt during all of 20x1 was a $3,000,000, 9%, 10-year note payable, with interest being paid annually.

Determine the Original Cost of the Office Building after taking into consideration the capitalization of interest:

$4,650,000

$4,818,000

$4,844,500

$4,850,000

Question 2 - Sparky purchased Equipment for $250,000, terms 2/10, n/30. In addition, Sparky paid for shipping to get the equipment delivered at a cost of $800, and installation at a cost of $1,200. During installation, it was determined that the electrical wiring in the room within the building that will house the new equipment was not adequate to support its functionality, and had to be re-wired at a cost of $1,500. Two employees performed a trial run on the new equipment to ensure it was in good working order. The trial run took 4 hours to complete, each employee is paid $30 per hour and the cost of raw materials used in the testing was $1,400.

Determine the original cost of the Equipment:

$250,140

$255,140

$255,020

$253,520