After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb. The shopping center would have opened on schedule on January 1, 2020, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2020. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance. In July 2019, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property. A summary of some of the costs incurred in 2019 and the first nine months of 2020 follows. 2019 January 1, 2020 through September 30, 2020 Interest on mortgage bonds $720,000 $540,000 Cost of obtaining tenants 300,000 360,000 Promotional advertising 540,000 557,000 The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2020, the 2019 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2020. All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on condition that the monthly rental charges for the first 9 months of 2020 be canceled. Instructions Explain how each of the costs for 2019 and the first 9 months of 2020 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.
After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb.
The shopping center would have opened on schedule on January 1, 2020, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2020. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance.
In July 2019, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property.
A summary of some of the costs incurred in 2019 and the first nine months of 2020 follows.
|
2019
|
January 1, 2020 through September 30, 2020 |
|
| Interest on mortgage bonds |
$720,000
|
$540,000
|
| Cost of obtaining tenants |
300,000
|
360,000
|
| Promotional advertising |
540,000
|
557,000
|
The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2020, the 2019 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2020.
All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on condition that the monthly rental charges for the first 9 months of 2020 be canceled.
Instructions
Explain how each of the costs for 2019 and the first 9 months of 2020 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.
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