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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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Asset Acquired by Donation A developer of a large shopping center donated a building and land to Hetting Co. without charge. The agreement provided that the company employ 350 people for 10 years. The land was appraised at $65,000 and the building at $44,000.

Required:

  1. 1. Prepare the journal entry to record the acquisition of the land and building.
  2. 2. Next Level How should the 10-year agreement be reported in the financial statements?
  3. 3. Next Level If the title were not to pass until after 10 years, would your answers to Requirements 1 and 2 change?

1.

To determine

Prepare journal entry for the acquisition of land and building.

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.

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 entry:

Date...

2.

To determine

Explain the way in which the 10-year agreement must be reported in the land and building.

3.

To determine

Explain the way in which the answer to requirement 1 and requirement 2 will change, if title is not to pass after 10 years.

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