Question

10-1 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




$

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