Question

During 2015, Mongo bought land with a building across the street. The purchased price was $350,000 for the land and building. Mongo intends to build a new building on the land and demolish the old building across the street. The cost of demolishing was $30,000 and they were able to recoupe $10,000 of these costs by selling the scrap to a recycler. 1. How should this be accounted for 2. What are the journal entries

Answer 1

1. The transaction has to be accounted for as purchase of land, since old building is to be demolished and after that new building is to be built.

2.

Account Titles	Debit	Credit
Land	$        350,000
Cash		$        350,000
(To record purchase of land)
Land	$          30,000
Cash		$          30,000
(To record cash paid demolishing old building)
Cash	$          10,000
Land		$          10,000
(Sale of scrap from old building demolition)

Entry can also be made as one merged together.

Account Titles	Debit	Credit
Land	$        370,000
Cash		$        370,000