Little King acquires land and an old building across the street from Northwestern State University. Little King intends to remove the old building and build a new sandwich shop on the land. What costs might the firm incur to make the land ready for its intended use?

Little King acquires land and an old building across the street from Northwestern State University. Little King intends to remove the old building and build a new sandwich shop on the land. What costs might the firm incur to make the land ready for its intended use?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 3PA: During the current year, Alanna Co. had the following transactions pertaining to its new office...

See similar textbooks

Similar questions

Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $559,000—that is, $52,000 for the land and $507,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows: a. Keep the property. Martinas’s accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Martinas makes a $12,675 mortgage payment each year on the property. The mortgage will be paid off in eight more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $76,050 for the building, which he still thinks is an appropriate figure.…
You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020. When would you recognize revenue for this payment? What method of accounting would you use for this construction project and why? What would be the benefits and challenges with your method selection? Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors). What might be some benefits and challenges associated with the other method of construction revenue recognition?
During the current year, Alanna Co. had the following transactions pertaining to its new office building. A. What should Alanna Co. record on its books for the land? The total cost of land includes all costs of preparing the land for use. The demolition cost of the old building is added to the land costs, and the sale of the old building scrap is subtracted from the land cost. B. What should Alanna Co. record on its books for the building?
Pelé Corp. owns a popular convenience store in Washington state. Messi Corp. is hoping to purchase the store from Pelé for $8,500,000. Messi has identified the land and building have a fair value of $7,000,000 while inventory has a fair value of $700,000. Because of the store’s popularity, excellent customer service, and customer loyalty, Messi is willing to pay $800,000 above the fair value of the assets acquired in the purchase. If Pelé Corp. decides it will not accept anything less than $8,500,000, which Messi Corp. agrees to pay, how is the excess $800,000 payment accounted for? Excess Contributed Capital Plant, & Equipment Property, Plant, & Equipment Accumulated Deprecitation Accumulated Deprecitation
During the current year, Alanna Co. had the following transactions pertaining to its new office building. What should Alanna Co. record on its books for the land? The total cost of land includes all costs of preparing the land for use. The demolition cost of the old building is added to the land costs, and the sale of the old building scrap is subtracted from the land cost. What should Alanna Co. record on its books for the building?
In 1898, Simon North announced plans to construct a funeral home on land he owned and rented out as a storage area for railway carts. Rental income from the site barely covered real estate taxes, but the site was valued at $45,000. However, Mr. North had refused several offers for the land and planned to continue renting it out of if, for some reason, the funeral home was not built. Therefore, he did not include the value of the land as an outlay in his NPV analysis of the funeral home. Was this the correct procedure? Explain.
The TLC Yogurt Company has decided to capitalize on the exercise fad and plans to open an exercise facility in conjunction with its main yogurt and health foods store. To get the project under way, the company will rent additional space adjacent to its current store. The equipment required for the facility will cost $50,000. Shipping and installation charges for the equipment are expected to total $5,000. This equipment will be depreciated on a straight-line basis over its five-year economic life to an estimated salvage value of $0. In order to open the exercise facility, TLC estimates that it will have to add about $7,000 initially to its net working capital in the form of additional inventories of exercise supplies, cash, and accounts receivable for its exercise customers. In addition, TLC expects that it will have to add about $5,000 per year to its net working capital in years 1, 2, and 3 and nothing in years 4 and 5. All net working capital that was spent…
The TLC Yogurt Company has decided to capitalize on the exercise fad and plans to open an exercise facility in conjunction with its main yogurt and health foods store. To get the project under way, the company will rent additional space adjacent to its current store. The equipment required for the facility will cost $50,000. Shipping and installation charges for the equipment are expected to total $5,000. This equipment will be depreciated on a straight-line basis over its five-year economic life to an estimated salvage value of $0. In order to open the exercise facility, TLC estimates that it will have to add about $7,000 initially to its net working capital in the form of additional inventories of exercise supplies, cash, and accounts receivable for its exercise customers. In addition, TLC expects that it will have to add about $5,000 per year to its net working capital in years 1, 2, and 3 and nothing in years 4 and 5. All net working capital that was spent…
What is the maximum price you would be willing to pay for the business? If an investor group purchased the restaurant near the campus for $255, 867 and the fair value of the assets they acquired was $202,000, identify the account along with its balance, that is used to record the additional amount paid over the fair value of the assets.
Tones Company purchased a warehouse in a downtown district where land values are rapidly increasing. Gerald Carter, the controller, and Wilma Ankara, financial vice president, are trying to allocate the cost of the purchase between the land and the building. Noting that depreciation can be taken only on the building, Carter favors placing a very high proportion of the cost on the warehouse itself, thus reducing taxable income and income taxes. Ankara, his supervisor, argues that the allocation should recognize the increasing value of the land, regardless of the depreciation potential of the warehouse. Besides, she says, net income is negatively impacted by additional depreciation and will cause the company's stock price to go down. Instructions: Answer the following questions: (a) What stakeholder interests are in conflict? (b) What ethical issues does Carter face? (c) How should these costs be allocated?
Steeley Associates, Inc., a property development firm, purchased an old house near the townsquare in Concord Falls, where State University is located. The old house was built in the mid1800s, and Steeley Associates restored it. For almost a decade, Steeley has leased it to theuniversity for academic office space. The house is located on a wide lawn and has become atown landmark.However, in 2008, the lease with the university expired, and Steeley Associates decided to buildhigh-density student apartments on the site, using all the open space. The community wasoutraged and objected to the town council. The legal counsel for the town spoke with arepresentative from Steeley and hinted that if Steeley requested a permit, the town would probablyreject it. Steeley had reviewed the town building code and felt confident that its plan was withinthe guidelines, but that did not necessarily mean that it could win a lawsuit against the town toforce it to grant a permit.The principals at Steeley…