Exercise 8-2 Recording costs of assets LO C1 Cala Manufacturing purchases land for $367,000 as part of its plans to build a new plant. The company pays $42.100 to tear down an old building on the lot and $62,235 to fill and level the lot. It also pays construction costs $1,299,300 for the new building and $82,016 for lighting and paving a parking area. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.

Exercise 8-2 Recording costs of assets LO C1 Cala Manufacturing purchases land for $367,000 as part of its plans to build a new plant. The company pays $42.100 to tear down an old building on the lot and $62,235 to fill and level the lot. It also pays construction costs $1,299,300 for the new building and $82,016 for lighting and paving a parking area. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter9: Fixed Assets And Intangible Assets

Section: Chapter Questions

Problem 9.3CP: Effect of depreciation on net income Tuttle Construction Co. specializes in building replicas of...

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Communication Godwin Co. owns three delivery trucks. Details for each truck at the end of the most recent year follow: At the beginning of the year, a hydraulic lift is added to Truck 1 at a cost of 4,500. The addition of the hydraulic lift will allow the company to deliver much larger objects than could previously be delivered. At the beginning of the year, the engine of Truck 2 is overhauled at a cost of 5,000. The engine overhaul will extend the trucks useful life by three years. Write a short memo to Godwins chief financial officer explaining the financial statement effects of the expenditures associated with Trucks 1 and 2.
Allocating payments and receipts to fixed asset accounts The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk. a. Fee paid to attorney for title search 3,600 b. Cost of real estate acquired as a plant site: Land 720,000 Building (to be demolished) 60,000 c. Finders fee paid to real estate agency 23,400 d. Delinquent real estate taxes on property, assumed by purchaser 15,000 e. Architects and engineers fees for plans for new building 75,000 f. Cost of removing building purchased with land in (b) 10,000 g. Proceeds from sale of salvage materials from old building 3,400 h. Cost of filling and grading land 18,000 i. Premium on one-year insurance policy during construction. 8,400 j. Money borrowed to pay building contractor 800,000 k. Special assessment paid to city for extension of water main to the property 13,400 1. Cost of repairing windstorm damage during construction 3,000 m. Cost of repairing vandalism damage during construction 2,000 n. Cost of trees and shrubbery planted 14,000 o. Cost of paving parking lot to be used by customers 21,600 p. Interest incurred on building loan during construction 40,000 q. Proceeds from insurance company for windstorm and vandalism damage 4,500 r. Payment to building contractor for new building 800,000 s. Refund of premium on insurance policy (i) canceled after 10 months 1,400 Instructions 1.Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows: Item Land Land Improvements Building Other Accounts 2.Determine the amount debited to Land, Land Improvements, and Building. 3.The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation. 4.What would be the effect on the current years income statement and balance sheet if the cost o f paving the parking lot o f 21,600 [payment (o)] was incorrectly classified as Land rather than Land Improvements? Assume that Land Improvements are depreciated over a 10-year life using the double-declining-balance method.
Allocating payments and receipts to fixed asset accounts The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk. a. Fee paid to attorney for title search 2,500 b. Cost of real estate acquired as a plant site: Land 285,000 Building (to be demolished) 55,000 c. Delinquent real estate taxes on property, assumed by purchaser 15,500 d. Cost of tearing down and removing building acquired In (b) 5,000 e. Proceeds from sale of salvage materials from old building 4,000 f. Special assessment paid to city for extension of water main to the property 29,000 g. Architects and engineers fees for plans and supervision 60,000 h. Premium on one-year insurance policy during construction 6,000 i. Cost of filling and grading land 12,000 j. Money borrowed to pay building contractor 900,000 k. Cost of repairing windstorm damage during construction 5,500 1. Cost of paving parking lot to be used by customers 32,000 m. Cost of trees and shrubbery planted 11,000 n. Cost of floodlights installed on parking lot 2,000 o. Cost of repairing vandalism damage during construction 2,500 p. Proceeds from insurance company for windstorm and vandalism damage 7,500 q. Payment to building contractor for new building 800,000 r. Interest incurred on building loan during construction 34,500 s. Refund of premium on insurance policy (h) canceled after 11 months 500 Instructions 1.Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows: Item Land Land improvements Building Other Accounts 2.Determine the amount debited to Land, Land Improvements, and Building. 3.The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation. 4.What would be the effect on the current years income statement and balance sheet if the cost of filling and grading land of 12,000 [payment (i)] was incorrectly classified as Land Improvements rather than Land? Assume that Land Improvements are depreciated over a 20-year life using the double-declining-balance method.
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