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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cost of Fixed Assets

Mooney Sounds, a local stereo retailer, needed a new store because it had outgrown the leased space it had used for several years. Mooney acquired and remodeled a former grocery store. As a part of the acquisition, Mooney incurred the following costs:

Chapter 7, Problem 45E, Cost of Fixed Assets Mooney Sounds, a local stereo retailer, needed a new store because it had

Required:

1. Determine the cost of the land and the building.

2. CONCEPTUAL CONNECTION 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?

To determine

Concept introduction:

Cost:

The cost is defined as any amount incurred by the company to acquire the asset and get the asset to set in place and ready for use. Any expenditures that are not included as part of the cost of the equipment are expenses and the other costs that are included are capitalized.

Requirement 1:

Determine the cost of land and building.

Explanation

The costs that are part of a land generally include the purchase price of the land, real estate commissions, property taxes, closing costs such ad attorney fees and survey fees, clearing and grading and demolition of unwanted buildings minus their salvage value.

The costs that are part of a building include the purchase price of the building, closing costs, cost of building permits, architectural fees, excavation costs and remodelling fees...

To determine

Concept introduction:

Cost:

The cost is defined as any amount incurred by the company to acquire the asset and get the asset to set in place and ready for use. Any expenditures that are not included as part of the cost of the equipment are expenses and the other costs that are included are capitalized.

Requirement 2:

If management wrongly includes a portion of building cost as part of the cost of land then what would be the effect on the financial statements.

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