Suppose Emory University acquired a 20-acre parcel of land immediately adjacent

Question

Suppose Emory University acquired a 20-acre parcel of land immediately adjacent to its existing facilities on January 2, 2012. The land included a warehouse, parking lots, and driveways. The university paid $800,000 cash and also gave a note for $3 million, payable at $300,000 per year plus interest of 5% on the outstanding balance.The university demolished the warehouse at a cash cost of $150,000 so it could be replaced with a new classroom building. For construction of the building, the university made a cash down payment of $3 million and gave a mortgage note of $7 million. The mortgage was payable at $250,000 per year plus interest of 5% on the outstanding balance. 1.Calculate the cost that Emory University should add to its Land account and its Building account. 2.Prepare journal entries (without explanations) to record the preceding transactions.

Explanation / Answer

In this problem, University has acquired 20 acre land on January 2,2012. This land includes warehouse, a parking lot, and driveways. For purchasing it, University paid cash $800,000. Rest is long term debt in the form of notes of $3,000,000. This note is repaid in yearly instalments of $300,000 principal plus due interest. Interest rate is 5%. So it will take 10 years to make full payment.

Warehouse of the land is demolished at $150,000 so that a building for classroom can be costructed. It is an expenditure made to make the land appropriate for the purpose for which it has been bought. So this demolition cost will be included in the cost of land.

for constructing Building cash payment is $3 million and mortgage loan is $7 million. It is payable at $250,000 per year plus 5% interest.

So cost to be added in Land account and building account are-

----------------------------------------------------------------------------------------------------------------------------------------

Answer of 2:

Journal entries to record the above trasactions are as follows:

1. To record Land purchase:

    Land account..................................................................Dr $3,950,000

          Cash account...........................................................                             $800,000

           5% Notes issued....................................................                            $3,000,000

2. To record cost of demolishing warehouse:

     Cost of improvment of Land............................................    $150,000

           Cash.....................................................................                                $150,000

3. Transfer of improvment cost to Land account:

    Land Account.................................................................   $150,000

           Cost of improvment.................................................                               $150,000

4. Construction of Building:

   Building Account............................................................ $10,000,000

         Cash Account..........................................................                            $3,000,0000

         5% Mortgage Loan Account......................................                             $7,000,000

Details Land Building 1. Cash paid $800,000 $3,000,000 2. Notes issued $3,000,000 $7,000,000 3. Cost of improvment $150,000 Total cost [1+2+3] $3,950,000 $10,000,000

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.