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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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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:

Chapter 10, Problem 1P, Acquisition Costs Mawn Company bought land and built a warehouse during 2019. It improperly debited

Required:

Prepare the correcting entries on December 31, 2019, to properly reclassify the preceding items.

To determine

Record the correcting entries to reclassify the preceding items.

Explanation

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.

DateAccount titles and explanationDebit ($)Credit ($)
 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)

  
   
 Building1,000  
      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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