Question

Determining Cost of Assets Cergo Computers constructed a new training center in 2014, which you have been hired to manage. A review of the accounting records shows the following expenditures debited to an asset account called Training Center:

Attorney's fee, land acquisition $ 34,900
Cost of land 598,000
Architect's fee, building design 102,000
Building 1,020,000
Parking lot and sidewalk 135,600
Electrical wiring, building 164,000
Landscaping 55,000
Cost of surveying land 9,200
Training equipment, tables, and chairs 136,400
Installation of training equipment 68,000
Cost of grading the land 14,000
Cost of changes in building to soundproof rooms 59,200
Total account balance $2,396,300

During the center's construction, an employee of Cergo worked full-time overseeing the project. He spent two months on the purchase and preparation of the site, six months on the construction, one month on land improvements, and one month on equipment installation and training-room furniture purchase and setup. His salary of $64,000 during this ten-month period was charged to Administrative Expense. The training center was placed in operation on November

A. Prepare a schedule with the following four column (account) headings: Land, Land Improvements, Building, and Equipment. Place each of the above expenditures in the appropriate column. Total the columns. If an amount box does not require an entry, leave it blank or enter "0".

B. What impact does the classification of the items among several accounts have on evaluating the profitability performance of the company?

Answer 1

The assets capitalized into different classes carry different rates and methods of depreciation.

Items capitalized under land will not be depreciated and hence it is capital expenditure not effecting the expenditure.

Depreciation on land improvements start when the project becomes substantially completed.

Depreciation on building starts when the building construction is substantially completed.

Depreciation on Equipments starts when the equipments begin to be put to use.