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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Acquisition Costs Mawn Company bought land and built a warehouse during 2019. It improperly debited the following related costs to an account titled Land and Buildings:
Required:
Prepare the correcting entries on December 31, 2019, to properly reclassify the preceding items.
Record the correcting entries to reclassify the preceding items.
Determination of cost:
The procurement or acquisition cost of “property, plant and equipment” comprises of all costs that are required to obtain the benefits to be derived from the asset.
Prepare correcting entries at December 31, 2019:
All original entries should be reversed out of the land and buildings account and noted in the correct accounts.
| Date | Account titles and explanation | Debit ($) | Credit ($) |
| Land | 26,500 | ||
| Land and Buildings (1) | 26,500 | ||
| (To record purchase, demolition of old building, and legal fees in separate land account) | |||
| Building | 2,900 | ||
| Land and Buildings | 2,900 | ||
| (To record interest on loan for construction). | |||
| Building | 53,000 | ||
| Land and Buildings | 53,000 | ||
| (To record cost of construction in separate building account) | |||
| Land | 1,200 | ||
| Land and Buildings | 1,200 | ||
| (To record sewer assessment) | |||
| Land or Land Improvements (Refer to note) | 3,500 | ||
| Land and Buildings | 3,500 | ||
| (To record cost of landscaping.) | |||
| Equipment | 18,800 | ||
| Land and Buildings | 18,800 | ||
| (To record excavation equipment purchase.) | |||
| Building | 15,000 | ||
| Land and Buildings | 15,000 | ||
|
(To record fixed overhead incurred during construction of Building) | |||
| Building | 1,000 | ||
| Land and Buildings | 1,000 | ||
| (To record cost of insurance during construction) | |||
| Profit (Gain) on Construction | 12,000 | ||
| Land and Buildings | 12,000 | ||
| (To reverse profit improperly recognized... |
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