This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

Heather Bolduc Unit 1 Chapter 10 Exercises 10-1 Acquisition costs; land and building On March 1, 2011, Beldon Corporation purchased land as a factory site for \$60,000. An old building on the property was demolished, and construction began on a new building that was completed on December 15, 2011 Cost incurred during this period are listed below: Demolition of old building \$4,000 Architects fees (for new building) 12,000 Legal fees for title investigation of land 2,000 Property taxes on land (for period beginning March 1, 2011) 3,000 Construction costs 500,000 Interest on construction loan 5,000 Salvaged materials resulting from the demolition of the old building were sold for \$2,000. Required: Determine the amounts that Beldon should capitalize as the cost of the land and the new building. Solution: Computation of the Capitalize cost of the land and New Building Cost of land: Particulars Amount Land \$ 60,000.00 demolition \$ 4,000.00 legal fees \$ 2,000.00 salvage materials \$ (2,000.00) Cost of Land \$ 64,000.00 Cost of building: Particulars Amount construction costs \$ 500,000.00 interest on construction loan \$ 5,000.00 architect \$ 12,000.00 Cost of Building \$ 517,000.00 Hence the cost of building and cost of land is \$ 517,000.00 \$ 64,000.00 Property taxes are operating costs 10-2 Acquisition cost; machinery Oaktree Company purchased a new machine and made the following expenditures: Purchase price \$45,000 Sales tax 2,200 Freight charges for shipment of machine 700 Insurance on the machine for the first year 900 Installation of machine 1,000 The machine, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid cash. Required: Prepare the necessary journal entries to record the above expenditures. Solution: Computation of the Necessary Journal Entries Machine costs: purchase price \$ 45,000 sales tax \$ 2,200 freight \$ 700 installation \$ 1,000 Total cost of machine \$ 48,900 Rule: Include all the costs to get the asset "in place and working" Ignore: Insurance (operating costs) Entry would be Machine A/c---------------------Dr \$ 48,900 To Account Payable A/c \$47, 200 To Cash A/c \$1, 700 Prepaid Insurance A/c------------Dr \$900 .00 To Cash A/c \$900 .00 10-3 Acquisition costs; lump-sum acquisition Semtech Manufacturing purchased land and building for \$4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building: Title insurance \$16,000 Legal fees for drawing the contract 5,000 Pro-rated property taxes for the period after acquisition 36,000 State transfer fees 4,000 An independent appraisal estimated the fair values o the land and building, if purchased ... View Full Document

End of Preview