Question

In: Accounting

4. February 1, 2018, Salisbury Company purchased land for the future factory location at a cost...

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.

Solutions

Expert Solution

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

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