mulung10-1 The expenditures and receipts below are related to land, land improvements, and buildings acquired for use in a business enterprise.
(a) |
Money borrowed to pay building contractor (signed a note) |
$(276,500 |
) |
(b) |
Payment for construction from note proceeds |
285,000 | |
(c) |
Cost of land fill and clearing |
11,000 | |
(d) |
Delinquent real estate taxes on property assumed by purchaser |
9,000 | |
(e) |
Premium on 6-month insurance policy during construction |
7,900 | |
(f) |
Refund of 1-month insurance premium because construction completed early |
(1,600 |
) |
(g) |
Architect’s fee on building |
27,400 | |
(h) |
Cost of real estate purchased as a plant site (land $206,500 and building $50,170) |
256,670 | |
(i) |
Commission fee paid to real estate agency |
8,300 | |
(j) |
Installation of fences around property |
6,000 | |
(k) |
Cost of razing and removing building |
13,400 | |
(l) |
Proceeds from salvage of demolished building |
(5,600 |
) |
(m) |
Interest paid during construction on money borrowed for construction |
14,100 | |
(n) |
Cost of parking lots and driveways |
20,500 | |
(o) |
Cost of trees and shrubbery planted (permanent in nature) |
14,100 | |
(p) |
Excavation costs for new building |
3,800 |
Identify each item by letter and list the items in columnar form, using the headings shown below. (Enter receipt amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Item |
Accounts |
Amount | |
(a) |
Money borrowed to pay building contractor (signed a note) |
LandEquipmentOther AccountsLand ImprovementsBuilding |
$ |
(b) |
Payment for construction from note proceeds |
EquipmentBuildingLandLand ImprovementsOther Accounts | |
(c) |
Cost of land fill and clearing |
LandBuildingLand ImprovementsEquipmentOther Accounts | |
(d) |
Delinquent real estate taxes on property assumed by purchaser |
BuildingOther AccountsLand ImprovementsEquipmentLand | |
(e) |
Premium on 6-month insurance policy during construction |
EquipmentOther AccountsLandLand ImprovementsBuilding | |
(f) |
Refund of 1-month insurance premium because construction completed early |
EquipmentOther AccountsLand ImprovementsBuildingLand | |
(g) |
Architect’s fee on building |
BuildingOther AccountsEquipmentLandLand Improvements | |
(h) |
Cost of real estate purchased as a plant site (land $202,900 and building $50,560) |
LandLand ImprovementsEquipmentOther AccountsBuilding | |
(i) |
Commission fee paid to real estate agency |
BuildingLandLand ImprovementsEquipmentOther Accounts | |
(j) |
Installation of fences around property |
Land ImprovementsOther AccountsBuildingEquipmentLand | |
(k) |
Cost of razing and removing building |
Land ImprovementsOther AccountsLandEquipmentBuilding | |
(l) |
Proceeds from salvage of demolished building |
BuildingOther AccountsLandEquipmentLand Improvements | |
(m) |
Interest paid during construction on money borrowed for construction |
Other AccountsLandLand ImprovementsBuildingEquipment | |
(n) |
Cost of parking lots and driveways |
EquipmentOther AccountsBuildingLandLand Improvements | |
(o) |
Cost of trees and shrubbery planted (permanent in nature) |
Land ImprovementsOther AccountsLandBuildingEquipment | |
(p) |
Excavation costs for new building |
EquipmentLandBuildingOther AccountsLand Improvements |
$ |
10-5 Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.
Abstract company’s fee for title search |
$1,222 | |
Architect’s fees |
7,450 | |
Cash paid for land and dilapidated building thereon |
216,200 | |
Removal of old building |
$47,000 | |
Less: Salvage |
12,925 |
34,075 |
Interest on short-term loans during construction |
17,390 | |
Excavation before construction for basement |
44,650 | |
Machinery purchased (subject to 2% cash discount, which was not taken) |
152,750 | |
Freight on machinery purchased |
3,149 | |
Storage charges on machinery, necessitated by noncompletion of | ||
building when machinery was delivered |
5,123 | |
New building constructed (building construction took 6 months from | ||
date of purchase of land and old building) |
1,139,750 | |
Assessment by city for drainage project |
3,760 | |
Hauling charges for delivery of machinery from storage to new building |
1,457 | |
Installation of machinery |
4,700 | |
Trees, shrubs, and other landscaping after completion of building | ||
(permanent in nature) |
12,690 |
Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation.
Land |
Buildings |
Machinery and Equipment |
Other | |
Abstract company’s fee for title search |
$ |
$ |
$ |
$ |
Architect’s fees | ||||
Cash paid for land and old building | ||||
Removal of old building | ||||
Interest on short-term loans during construction | ||||
Excavation before construction for basement | ||||
Machinery purchased | ||||
Freight on machinery purchased | ||||
Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered | ||||
New building constructed | ||||
Assessment by city for drainage project | ||||
Hauling charges for delivery of machinery from storage to new building | ||||
Installation of machinery | ||||
Trees, shrubs, and other landscaping after completion of building | ||||
$ |
$ |
$ |
$ |
Exercise 10-8 On December 31, 2011, Hurston Inc. borrowed $7,110,000 at 12% payable annually to finance the construction of a new building. In 2012, the company made the following expenditures related to this building: March 1, $853,200; June 1, $1,422,000; July 1, $3,555,000; December 1, $2,844,000. Additional information is provided as follows.
1. |
Other debt outstanding | |
10-year, 11% bond, December 31, 2005, interest payable annually |
$9,480,000 | |
6-year, 10% note, dated December 31, 2009, interest payable annually |
$3,792,000 | |
2. |
March 1, 2012, expenditure included land costs of $355,500 | |
3. |
Interest revenue earned in 2012 |
$116,130 |
(a) Determine the amount of interest to be capitalized in 2012 in relation to the construction of the building.
The amount of interest |
$ |
(b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation |
Debit |
Credit |
Problem 10-1
At December 31, 2011, certain accounts included in the property, plant, and equipment section of Reagan Company’s balance sheet had the following balances.
Land |
$232,370 |
Buildings |
901,150 |
Leasehold improvements |
665,950 |
Equipment |
875,940 |
During 2012, the following transactions occurred.
1. |
Land site number 621 was acquired for $853,480. In addition, to acquire the land Reagan paid a $54,040 commission to a real estate agent. Costs of $42,970 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $15,680. |
2. |
A second tract of land (site number 622) with a building was acquired for $422,740. The closing statement indicated that the land value was $301,960 and the building value was $120,780. Shortly after acquisition, the building was demolished at a cost of $50,000. A new building was constructed for $333,000 plus the following costs. |
Excavation fees |
$44,870 |
Architectural design fees |
16,620 |
Building permit fee |
3,410 |
Imputed interest on funds used during construction (stock financing) |
9,320 |
The building was completed and occupied on September 30, 2012.
3. |
A third tract of land (site number 623) was acquired for $652,890 and was put on the market for resale. |
4. |
During December 2012, costs of $98,050 were incurred to improve leased office space. The related lease will terminate on December 31, 2014, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.) |
5. |
A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $86,250, freight costs were $3,860, installation costs were $2,810, and royalty payments for 2012 were $17,690. |
Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2012. Disregard the related accumulated depreciation accounts.
Balance at December 31, 2012 | |
Land |
$ |
Buildings |
$ |
Leasehold improvements |
$ |
Equipment |
$ |
12 years ago
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