At December 31, 2013, certain accounts included in the property, plant, and equipment section of Reagan Company’s balance sheet had the following balances. Land Buildings Leasehold improvements Equipment $230,000 890,000 660,000 875,000 During 2014, the following transactions occurred. 1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the following costs.   The building was completed and occupied on September 30, 2014. 3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale. 4. During December 2014, costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2016 and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.) 5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2014 were $17,500. Required (a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2014. Land                           Leasehold Improvements Buildings                     Equipment Disregard the related accumulated depreciation accounts. b) Pass the necessary journal entries.

Question

At December 31, 2013, certain accounts included in the property, plant, and equipment section of Reagan Company’s balance sheet had the following balances.

Land
Buildings
Leasehold improvements
Equipment

$230,000
890,000
660,000
875,000

During 2014, the following transactions occurred.
1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000.

  1. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the following costs.

 

The building was completed and occupied on September 30, 2014.
3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale.
4. During December 2014, costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2016 and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.)
5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2014 were $17,500.

Required

(a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2014.

Land                           Leasehold Improvements

Buildings                     Equipment

Disregard the related accumulated depreciation accounts.

  1. b) Pass the necessary journal entries.

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