Question 4. Required: Provide the journal entries for the independent transactio

Question

Question 4. Required: Provide the journal entries for the independent transactions below: Item a) Jan. 1, 2018 purchased land with a usable office building thereon for cash of $400,000. Market value for the land was $40,000, and the market value of the building was $120,000 b) Jan. 1, 2018 purchased land for future building site for a cash cost of $80,000; an old building on this site, appraised at $4,000 at the date of purchase, is to be torn down immediately. c) Net cash cost of demolishing the old building in (b) above amounted to S4,000. d) Cash cost of excavation for basement of the new building (b above) was $12.000 e) Lawyers' fees paid in connection with purchase of real estate in (b) $1800 1) Taxes paid on land purchased in (b) assessed before completion of building, $600 g) Factory superintendent's salary for 2018 was $48,000. During 2018, the superintendent spent the first six months supervising construction of the new building; the next three months supervising installation of productive machinery in the new building, and the last three months supervising operations in the new building. h) Cost of grading and paying parking space and walks behind new building, $19,000

Explanation / Answer

a) Land a/c Dr 40,000

Building a/c Dr 120,000

Good will a/c Dr 240,000

To cash a/c Cr 400,000

(Being land & building purchased on lumpsum at more than market value)

Here we purchased for more than market value of Land & building, Hence we treated the extra payment(400,000-(40,000+120,000)) made is towards goodwill .

b) Land a/c Dr 80,000

To cash a/c Cr 80,000

(Being purchase of land for construction of new building)

Here the building on the land is not considered as we are planning to demolish it.

c) Land a/c Dr 4,000

To cash a/c Cr 4,000

(Being cost incurred on demolishing of old building on purchased land)

Cost of demolishing of existing building on a land is to be added to be capitalised to land as these costs may be considered ordinary and necessary to get the land ready for its intended use.

d) Building a/c Dr 12,000

To cash a/c Cr 12,000

(Being cost incurred on ecavation for basement of the new building is included in the cost of new building)

e) Land a/c Dr 1,800

To cash a/c Cr 1,800

(Being Lawyer fee paid in connection to purchase of land)

f) Land a/c Dr 600

To cash a/c Cr 600

(Being taes paid on land purchased)

g) Building a/c Dr 24,000

Machinery a/c Dr 12,000

Salary of Superintendent a/c Dr 12,000

To salary payable/Cash a/c Cr 48,000

(Being salary of superintendent payable/ paid who worked for 6 months in supervising construction of building 3 months in supervising installation of productive machinery and other 3 months on operations)

Here total salary of 12 months of factory superintendent is = 48,000

Out of 12 months, he supervised on construction of building for 6 months for which salary cost is to be added to building. and for 3 months he supervised the installation of machinery, so the salary for this 3 months period is to be capitalised to machinery account.

All the cost incurred related to the asset during its construction is to be capitalied (that is all such costs are to be included in the asset a/c).

h) Land improvements a/c Dr 19,000

To cash a/c Cr 19,000

(Being cost incurred on cost of grading and paying parking space behind new building).

These kind of costs are noted as sepearate asset as land improvement, because these can be depreciated but not the land.when depreciation is considered. Land is considered to have an indefinite life and is not depreciated. Alternatively, parking lots, irrigation systems, and so forth do wear out and must be depreciated.

Note:-

Dr = Debit

Cr = credit

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