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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 of Land and Building On February 1, 2019, Edwards Corporation purchased a parcel of land as a factory site for $100,000. It demolished an old building on the property and began construction on a new building that was completed on October 2, 2019. Costs incurred during this period are:

Chapter 10, Problem 6E, Acquisition of Land and Building On February 1, 2019, Edwards Corporation purchased a parcel of land

Edwards sold salvaged materials resulting from the demolition for $2,000.

Required:

  1. 1. At what amount should Edwards record the cost of the land and the new building, respectively?
  2. 2. Next Level If management misclassified a portion of the building’s cost as part of the cost of the land, what would be the effect on the financial statements?

1.

To determine

State the amount at which the Corporation E must record the cost of the land and the new building respectively.

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.

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.

ParticularsAmount ($)
Land: 

2.

To determine

State the effect on the financial statement. If the management misclassified a portion of the building’s cost as part of the cost of the land.

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