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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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Comprehensive At December 31, 2018, certain accounts included in the property, plant, and equipment section of Townsand Company’s balance sheet had the following balances:

Chapter 10, Problem 4P, Comprehensive At December 31, 2018, certain accounts included in the property, plant, and equipment , example  1

During 2019, the following transactions occurred:

  1. 1. Land site number 621 was acquired for $1,000,000. Additionally, to acquire the land, Townsand paid a $60,000 commission to a real estate agent. Costs of $15,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $5,000.
  2. 2. A second tract of land (site number 622) with a building was acquired for $300,000. The closing statement indicated that the land value was $200,000 and the building value was $100,000. Shortly after acquisition, the building was demolished at a cost of $30,000. A new building was constructed for $150,000 plus the following costs:

Chapter 10, Problem 4P, Comprehensive At December 31, 2018, certain accounts included in the property, plant, and equipment , example  2

  The building was completed and occupied on September 29, 2019.

  1. 3. A third tract of land (site number 623) was acquired for $600,000 and was put on the market for resale.
  2. 4. Extensive work was done to a building occupied by Townsand under a lease agreement that expires on December 31, 2028. The total cost of the work was $125,000, which consisted of the following:

Chapter 10, Problem 4P, Comprehensive At December 31, 2018, certain accounts included in the property, plant, and equipment , example  3

The lessor, Steinbeck Company, paid one-half of the costs incurred in connection with the extension to the current working area.

  1. 5. During December 2019, costs of $65,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2021, and is not expected to be renewed.
  2. 6. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $75,000, freight costs were $2,000, unloading charges were $1,500, and royalty payments for 2019 were $13,000.

Required:

  1. 1. Prepare a detailed analysis of the changes in the balance sheet accounts—Land, Buildings, Leasehold Improvements, and Machinery and Equipment—for 2019. Disregard the related accumulated depredation accounts.
  2. 2. List the items in the fact situation that were not used to determine the answer to Requirement 1, and indicate where, or if, these items should be included in Townsand’s financial statements.

1.

To determine

Prepare a detailed analysis of the changes in the accounts of balance sheet.

Explanation

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.

Analysis of land account is as follows:

Company T
Analysis of Land Account
For the year 2019
ParticularsAmount ($)Amount ($)Amount ($)
Balance at January 1, 2019   100,000
Land site number 621:   
Acquisition cost 1,000,000  
Commission to real estate agent 60,000 
Clearing costs $15,00015,000  
Less: Amounts recovered  (5,000)(5,000)10,000 
Total land site number 621   1,070,000
Land site number 622:   
Land value  $200,000  
Building value  100,000 
Demolition cost  30,000 
Total land site number 622   330,000
Balance at December 31, 2019   $1,500,000

Table (1)

Therefore, the balance of land account at December 31, 2019 is $1,500,000.

Analysis of buildings account is as follows:

Company T
Analysis of Buildings Account
For the year 2019
ParticularsAmount ($)Amount ($)
Balance at January 1, 2019  800,000

Cost of new building constructed

on land site number 622:

  
Construction costs150,000  
Excavation fees11,000 
Architectural design fees 8,000 
Building permit fee 1,000170,000
Balance at December 31, 2019  970,000

Table (2)

Therefore, the balance of buildings account at December 31, 2019 is $970,000...

2.

To determine

List the items that are not used to ascertain the answer to requirement 1, and explain whether these items must be included in the financial statements.

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