EXERCISES: SET B
The following expenditures relating to plant assets were made by Franklin Company
during the first 2 months of 2010.
Paid $1,100 sales taxes on new delivery truck.
Paid $125 insurance to cover possible accident loss on new factory machinery while the ma-
chinery was in transit.
Paid $4,000 of accrued taxes at time plant site was acquired.
Paid $19,000 for parking lots and driveways on new plant site.
Paid $400 to have company name and advertising slogan painted on new delivery truck.
Paid $60 motor vehicle license fee on the new truck.
Paid $1,050 for one-year accident insurance policy on new delivery truck.
Paid $6,000 for installation of new factory machinery.
Explain the application of the cost principle in determining the acquisition cost of
List the numbers of the foregoing transactions, and opposite each indicate the account title
to which each expenditure should be debited.
Betty Company incurred the following costs.
Installation and testing of factory machinery
Painting of and lettering on truck immediately upon purchase
Sales tax on factory machinery purchased
Cost of landscaping on property purchased
Insurance premium paid for first year’s insurance on new truck
Broker’s commission on land purchased
Cost of paving parking lot for new building constructed
Architect’s fees on self-constructed building
Cost of clearing, draining, and filling land
Indicate to which account Betty would debit each of the costs.
On March 1, 2010, Mark Company acquired real estate on which it planned to construct
a small office building. The company paid $60,000 in cash. An old warehouse on the property was
razed at a cost of $6,400; the salvaged materials were sold for $1,200. Additional expenditures be-
fore construction began included $800 attorney’s fee for work concerning the land purchase, $3,800
real estate broker’s fee, $5,800 architect’s fee, and $11,000 to put in driveways and a parking lot.
Determine the amount to be reported as the cost of the land.
For each cost not used in part (a), indicate the account to be debited.
Bob Sager has prepared the following list of statements about depreciation.
Depreciation is a process of cost allocation, not asset valuation.
Depreciation does not result in the proper matching of expenses with revenues.