Intermediate Accounting: Reporting...

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



Intermediate Accounting: Reporting...

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

Classification of Costs Associated with Assets The following account balances were included in Bromley Company’s balance sheet on December 31, 2018:

Chapter 10, Problem 2P, Classification of Costs Associated with Assets The following account balances were included in

During 2019, the following transactions occurred:

  1. 1. Land was acquired for $70,000 for a future building site. Commissions of $4,000 were paid to a real estate agent.
  2. 2. A factory and land were acquired from Kent Development Company by issuing 20,000 shares of $3 par common stock. At that time, the stock was selling for $10 per share on the New York Stock Exchange. The independently appraised values of the land and the factory were $60,000 and $180,000, respectively.
  3. 3. Equipment was acquired at a cost of $120,000. In addition, sales tax, freight costs, and installation costs were $7,000, $10,000, and $16,000, respectively. During installation, the equipment was damaged, and $2,000 was spent for repairs.
  4. 4. A new parking lot was installed at a cost of $30,000.
  5. 5. Half the land purchased in Item 1 was prepared as a building site. Costs of $26,000 were incurred to clear the land, and the timber recovered was sold for $3,000. A new building was built for $60,000. Architect’s fees relating to construction were $18,000, and imputed interest on equity funds used during construction was $15,000. No debt is outstanding.
  6. 6. Costs of $20,000 were incurred to improve some leased office space. The lease will terminate in 2021 and is not expected to be renewed.
  7. 7. A group of new machines was purchased under a royalty agreement that provides for payment of annual royalties based on units produced. The invoice price of the machines was $30,000, freight costs were $2,000, and royalty payments for 2019 were $12,000.


Prepare journal entries to record all the preceding events. Unless otherwise indicated, assume the company makes all payments in cash.

To determine

Journalize entries to record all the preceding events.


Property, Plant, and Equipment:

Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains

Prepare journal entries:

DateAccount titles and explanationDebit ($)Credit ($)
 Investment in Land ($70,000+$4,000) 74,000 
      Cash  74,000
  (To record the land acquired)  
 Land (1)50,000 
 Buildings (2)150,000 
      Common Stock, $3 par  60,000
      Additional Paid-In Capital on Common Stock  140,000
 (To record the buildings land acquired through issuance of common stock)  
 Equipment 153,000 
 Repair and Maintenance Expense 2,000 
      Cash  155,000
 ( To record the expenses associated with equipment)  
 Land Improvements 30,000 
      Cash  30,000
  (To record the instalment of new parking lot)  
 Land (5)60,000 
 Buildings (6)78,000 
      Investment in Land  37,000
      Cash 101,000
 ( To record the costs associated with land and building)  
 Leasehold Improvements20,000 
      Cash 20,000
  (To record the leasehold improvements)  
 Equipment ($30,000+$2,000) 32,000 
      Cash  32,000
  ( To record the purchase of equipment)  
 Royalty Expense12,000 
      Cash  12,000
 ( To record the royalty payments)  

Table (1)

Working notes:

(1) Calculate the amount of land:


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