In: Accounting
4. February 1, 2018, Salisbury Company purchased land for the future factory location at a cost of $102,000. The dilapidated building that was on the property was demolished so that construction could begin on the new factory building. The new factory was completed on November 1, 2018. Costs incurred during this period were:
Item |
Amount |
Demolition dilapidated building |
$2,200 |
Architect Fees |
$11,250 |
Legal Fees - for title search |
$1,850 |
Interest During Active Construction Period |
$5,025 |
Real estate transfer tax |
$1,350 |
Construction Costs |
$605,000 |
Using this information, how much should be recorded as the cost of the land?
5. On January 1, 2017, Frostburg Company purchased for $68,500, equipment having a service life of six years and an estimated residual value of $4,000. Frostburg has recorded depreciation of the equipment using the straight-line method. On December 31, 2019, before making any annual adjusting entries, the equipment was exchanged for new machinery having a fair value of $35,000. The transaction has commercial substance. Use this information to prepare all General Journal entries (without explanation) required to record the events for December 31, 2019.
Amount in $
Solution to Problem 4:
Land cost = 102000
Demolition dilapidated building = 2200
Legal fees - title search = 1850
Real estate transfer tax = 1350
Total = 107400
Cost of land which should be recorded is $107400
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Amount in $
Solution to Problem 5:
Purchase price of equipment = 68500
Estimated residual value = 4000
Depreciable cost of equipment = 68500-4000 = 64500
Service life = 6 years
Annual depreciation on equipment = 64500/6 = 10750
Equipment value as on January 01, 2019: 47000
Year 2017 = 68500 - 10750 = 57750
Year 2018 = 57750 - 10750 = 47000
Equipment value as on December 31, 2019 = 47000 - 10750 = 36250
Accumulated Depreciation from 2017 to 2019 = 10750*3 = 32250
December 31, 2019 | Depreciation on Equipment - Expense | 10750 | |
Accumulated Depreciation | 10750 | ||
December 31, 2019 | New Machinery - Asset | 35000 | |
Accumulated Depreciation | 32250 | ||
Loss on exchange of equipment | 1250 | ||
Equipment | 68500 |