Let's solve the problem **step by step** for each required amount: --- ## 1. **Land (Dec 31, 2025 & Dec 31, 2026)** Land capitalized cost includes: - Purchase price: ¥147,340 - Surveying: ¥2,120 - Title insurance: ¥4,240 - Demolition cost: ¥3,180 - Less: Salvage from old materials: (¥1,060) **Land Cost Calculation:** \[ \text{Land Cost} = 147,340 + 2,120 + 4,240 + 3,180 - 1,060 = \boxed{155,820} \] *Land does not change in 2026.* --- ## 2. **Buildings (Dec 31, 2025 & Dec 31, 2026)** ### **2025:** Costs incurred in2025: - Architect: ¥31,800 - Permits: ¥3,180 \[ \text{Building Cost (2025)} = 31,800 + 3,180 = \boxed{34,980} \] ### **2026:** Add payments to contractor: - March 1: ¥254,400 - May 1: ¥349,800 - July 1: ¥63,600 \[ \text{Total 2026 Payments} = 254,400 + 349,800 + 63,600 = 667,800 \] Add 2025 costs: \[ \text{Building Cost before interest} = 34,980 + 667,800 = 702,780 \] **Add capitalized interest (see below for calculation):** --- ## 3. **Interest Expense (Dec 31, 2025 & Dec 31, 2026)** ### **2025:** - Loan on Dec 1, 2025: ¥636,000 at 8% interest - Interest for 1 month = ¥636,000 × 8% × (1/12) = ¥4,240 - Less: Investment income = ¥2,120 **Capitalizable interest (2025):** \[ \text{Interest capitalized} = 4,240 - 2,120 = \boxed{2,120} \] **Interest expense (2025):** - All interest is capitalized since building under construction. **So, Interest Expense (2025) = ** ### **2026:** We need to capitalize interest on average accumulated expenditures (AAE). #### **Average Accumulated Expenditures (AAE):** - March 1: ₹254,400 × (4/12) = 84,800 - May 1: ₹349,800 × (2/12) = 58,300 - July 1: ₹63,600 × (/12) = (building completed on July 1, so no months outstanding) \[ \text{AAE} = 84,800 + 58,300 = 143,100 \] But, for capitalizing interest, we actually use the weighted-average expenditures method. Let's apply the months outstanding for each payment: - **March 1:** 10 months outstanding (March–Dec): \(254,400 \times \frac{10}{12} = 211,999.999 \approx 212,000\) - **May 1:** 8 months outstanding (May–Dec): \(349,800 \times \frac{8}{12} = 233,200\) - **July 1:** 6 months outstanding (July–Dec): \(63,600 \times \frac{6}{12} = 31,800\) \[ \text{AAE (2026)} = 212,000 + 233,200 + 31,800 = 477,000 \] #### **Interest to Capitalize (2026):** \[ \text{Interest to Capitalize} = 477,000 \times 8\% = 38,160 \] #### **Actual Interest Incurred (2026):** - Loan outstanding all year: \(636,000 \times 8\% = 50,880\) #### **Interest Expense (2026):** \[ \text{Interest Expense (2026)} = \text{Actual Interest} - \text{Interest Capitalized} = 50,880 - 38,160 = 12,720 \] --- ### **Building Cost at Dec 31, 2026** Add capitalized interest for 2025 and 2026: \[ \text{Capitalized Interest} = 2,120 + 38,160 = 40,280 \] \[ \text{Total Building Cost (2026)} = 702,780 + 40,280 = \boxed{743,060} \] --- ## **Summary Table** | | Dec 31, 2025 | Dec 31, 2026 | |-------------------------|--------------|--------------| | a. Land | 155,820 | 155,820 | | b. Buildings | 34,980 | 743,060 | | c. Interest Expense | | 12,720 | --- ### **Final Summary** - **Land cost** (same both years): **¥155,820** - **Building cost**: **¥34,980** at 2025; **¥743,060** at 2026 (includes capitalized interest). - **Interest expense**: **¥** at 2025 (all capitalized); **¥12,720** at 2026 (difference between actual interest and capitalized interest). Let me know if you need explanation for any part!

## Interest Rate Calculation on December 31, 2025 ### **Interest Rate Explanation** Wildhorse Landscaping took out a loan of ¥636,000 at an interest rate of 8% for a period of 10 years. The interest calculation for the first month (December 2025) is as follows: ### **Calculation Steps for December 31, 2025** 1. **Loan Amount**: ¥636,000 2. **Interest Rate**: 8% per annum 3. **Interest Calculation for 1 Month**: \[ \text{Interest for December} = \text{Loan Amount} \times \left(\frac{\text{Interest Rate}}{12}\right) \] \[ \text{Interest for December} = 636,000 \times \left(\frac{8\%}{12}\right) = 636,000 \times \frac{0.08}{12} = 4,240 \] ### **Interest Expense and Capitalization** - **Total Interest for December 2025**: ¥4,240 - **Less Investment Income Earned**: ¥2,120 - **Capitalizable Interest**: \[ \text{Capitalized Interest} = \text{Interest for December} - \text{Investment Income} \] \[ \text{Capitalized Interest} = 4,240 - 2,120 = 2,120 \] ### **Summary for December 31, 2025** - **Interest Expense for December 2025**: - Since all interest is capitalized during construction, the interest expense recognized on the income statement for the year 2025 is **¥0**. - **Capitalized Interest**: **¥2,120**. --- ### **Final Summary of Interest Rate on December 31, 2025** - **Loan Amount**: ¥636,000 - **Interest Rate**: 8% per annum - **Interest for December**: ¥4,240 - **Investment Income**: ¥2,120 - **Capitalized Interest**: ¥2,120 - **Interest Expense**: ¥0 (all capitalized) If you have any further questions or need additional details, feel free to ask!

# Summary of Calculations for Wildhorse Landscaping ## 1. Land Cost Calculation The total cost of land includes the purchase price, surveying costs, title insurance, and demolition costs, minus the salvage value. The final land cost at both December 31, 2025, and December 31, 2026, is **¥155,820**. ## 2. Building Cost Calculation In 2025, the building costs consist of architectural fees and permit expenses, totaling **¥34,980**. By the end of 2026, after adding contractor payments and capitalized interest, the total building cost reaches **¥743,060**. ## 3. Interest Expense Calculation For December 2025, the interest incurred on the loan is **¥4,240**, reduced by investment income of **¥2,120**, resulting in capitalized interest of **¥2,120**. In 2026, the actual interest expense recognized is **¥12,720** after accounting for capitalized interest. --- ### **Final Summary** - **Land Cost**: Remains at **¥155,820** for both periods. - **Building Cost**: Increases from **¥34,980** in 2025 to **¥743,060** in 2026. - **Interest Expense**: **¥0** for 2025 (all capitalized) and **¥12,720** for 2026.