Question

1. The Howell’s decided to build a resort hotel on land owned by Chief Ugundi. For each of the following items, indicate whether the cost should be recorded as Land (L), Land Improvements (LI), Resort Hotel (RH), or Equipment (E) by placing the correct answer in the space provided.

Answer
	Fences around the property site cost $50,000
	Construction of the resort hotel cost $5,000,000
	Demolition of existing huts on the land cost $80,000
	Installation of wooden sidewalks between the resort hotel and parking lot cost $40,000
	Architectural fees for the resort hotel cost $30,000
	A construction permit obtained from Chief Ugundi cost $20,000
	Clearing the brush and removing unwanted trees on the site cost $60,000
	Purchased a wagon to assist with hauling away trees and dirt for $25,000
	The Professor charged $40,000 to act as engineer and architect on the resort hotel
	Constructing permanent tiki torches around the site as lighting cost $10,000
	Landscaping (shrubs and decorative ornaments) around the resort cost $100,000
	The actual purchase price for the land cost $200,000

2. Prepare below the journal entry to record the above transactions assuming all costs were paid with Cash the Howell’s brought with them to the island. Please note that all costs listed above should be included in one of the accounts listed below. Just fill in the debit amounts appropriately and check to make sure all debits together equal the amount for Cash.

Account	Debit	Credit
Land
Land improvements
Building
Equipment
Cash		5,655,000

3. The Skipper and Gilligan spent $200,000 to build a marina in the cove. The marina is expected to have a useful life of 20 years at the end of which it is expected to have a salvage value of $30,000. Show your calculation of depreciation expense per year below.

Prepare below the journal entry to record depreciation expense for Year One using the straight-line method.

Account	Debit	Credit

Prepare below the journal entry to record depreciation expense for Year Two.

Account	Debit	Credit

      C. What is the book value of the marina after Year Two? Show your work below.

Answer 1

1
	Answer
	LI	Fences around the property site cost $50,000
	RH	Construction of the resort hotel cost $5,000,000
	LI	Demolition of existing huts on the land cost $80,000
	LI	Installation of wooden sidewalks between the resort hotel and parking lot cost $40,000
	RH	Architectural fees for the resort hotel cost $30,000
	RH	A construction permit obtained from Chief Ugundi cost $20,000
	L	Clearing the brush and removing unwanted trees on the site cost $60,000
	E	Purchased a wagon to assist with hauling away trees and dirt for $25,000
	RH	The Professor charged $40,000 to act as engineer and architect on the resort hotel
	LI	Constructing permanent tiki torches around the site as lighting cost $10,000
	LI	Landscaping (shrubs and decorative ornaments) around the resort cost $100,000
	L	The actual purchase price for the land cost $200,000
2	Account	Debit	Credit
	Land	260000		[200000+60000]
	Land improvements	280000		[50000+80000+40000+10000+100000]
	Building	5090000		[5000000+30000+20000+40000]
	Equipment	25000		25000
	Cash		5,655,000
3	Depreciation per year = (Cost of Marina - Salvage Value)/Useful Life
	= (200000-30000)/20
	$                                                                                            8,500.00
	Prepare below the journal entry to record depreciation expense for Year One using the straight-line method.
	Depreciation Expense A/c Dr.	$8,500
	To Marina (Fixed Asset)		$8,500
	(Being Depreciation charged for year 1)
	Prepare below the journal entry to record depreciation expense for Year Two.
	Depreciation Expense A/c Dr.	$8,500
	To Marina (Fixed Asset)		$8,500
	(Being Depreciation charged for year 2)
	C. What is the book value of the marina after Year Two? Show your work below.
	Cost of Marina	$200,000
	Less: depreciation charged for Year 1	($8,500)
	Less: depreciation charged for Year 2	($8,500)
	book value of the marina after Year Two	$183,000