Chapter 10, Problem 3APSA

To determine

Depreciation:

Depreciation means depletion in the value of the asset due to continued utilization in the processes. It turns the asset obsolete after a certain period of time. Depreciation can be calculated by using straight line method or double declining method.

Asset-Cost Allocation:

Under the asset cost allocation method the indirect costs of the project are distributed to the values of other existing assets of the company.

1.

To prepare: Table showing cost allocation

Explanation of Solution

Allocation of Purchase Price	Appraised Value	Percentage Total of Appraised value	Total Cost of Acquisition	Apportioned Cost
Land	1,736,000	33.60	2,600,000	8,736,000
Building 2	644,000	12.46	2,600,000	323,960
Land Improvements 1	420,000	8.13	2,600,000	211,380
Building 3	22,02,000	42.62	2,600,000	1,108,120
Land Improvements 2	164,000	3.17	2,600,000	82,420
Total	5,166,000

Table (1)

Adjustments for final value,

Adjustments	Land	Building2	Building3	Land Improvements 1	Land Improvements 2
Apportioned Cost	8,736,000	323,960	1,108,120	211,380	82,420
Cost of demolition	328,400
Land Grading	175,400
Final Value	369,800	323,960	1,108,120	211,380	82,420

Table (2)

2.

To determine

To prepare: Journal entries.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Jan 1,2018	Land		369,800
	Building 2		323,960
	Building 3		1,108,120
	Land Improvements 1		211,380
	Land Improvements 2		82,420
	Cash			2,095,680
	(Being costs incurred recorded)

Table (3)

• Land is an asset which when purchased increases the value of asset hence debit land account.

• Building is an asset which when purchased ads to the value of asset hence debit building 2 account.

• Building is an asset which when purchased adds to the value of asset hence debit building 2 account.

• Land improvements increase the value of asset hence debit land improvements 1.

• Land improvements increase the value of asset hence debit land improvements 2.

• Cash is an asset which is decreased on account of such costs incurred hence credit cash account.

3.

To prepare: Adjusting entries to record depreciation.

Explanation of Solution

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Depreciation expense Building 2		13,198
	Accumulated Depreciation Building 2			13,198
	(Being depreciation expense recorded)

Table (4)

• Depreciation is an expense which decreases the value of the asset hence debit all expenses and losses

• Accumulated depreciation is creates a provision which is an income hence credit accumulated depreciation building 2.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Depreciation expense Building 3		28,644
	Accumulated Depreciation Building 3			28,644
	(Being depreciation expense recorded)

Table (5)

• Depreciation is an expense which decreases the value of the asset hence debit all expenses and losses

• Accumulated depreciation is creates a provision which is an income hence credit accumulated depreciation building 3.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Depreciation expense Land Improvements 1		32,500
	Accumulated depreciation Land Improvements 1			32,500
	(Being land improvements 1 expense recorded)

Table (6)

• Depreciation expense-Land improvements is an expense which decreases the value of the asset hence debit all expenses and losses

• Accumulated depreciation- Land improvement creates a provision which is an income hence credit accumulated depreciation- Land improvements1.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Depreciation expense Land Improvements 2		8,200
	Accumulated depreciation Land Improvements 2			8,200
	(Being land improvements 2 expense recorded)

Table (7)

• Depreciation expense-land improvement is an expense which decreases the value of the asset hence debit all expenses and losses.

• Accumulated depreciation- Land improvement creates a provision which is an income hence credit accumulated depreciation- Land improvements 2.