You are reviewing the property, plant, and equiptment working papers of Mandvill

Question

You are reviewing the property, plant, and equiptment working papers of Mandville corporation, a company that publishes travel guides. 1. Land: The addition represents the purchase of land adjacent to the companys existing plant and is financed as follows: Contract sales price- 2000 shares of Mandville Corporation Common Stock Liabilities assumed by Mandville. Accrued county taxes at settlement date (4,600), Unpaid sewer installation assessment (6,400)

On June 17, the date on which the buyer and seller discussed the transaction, shares of Mandville Corporation stock were selling for 77.50. On June 30, the settlement date (day of the sale), Mandville stock was selling for 70.00 per share. The journal entry for the purchase was recorded as: Debit Land 151,000, Credit Common stock 20,000, Credit Paid in capital in excess of par 120000, Credit Accrued taxes payable 4,600, Credit Accrued sewer assessment payable 6,400.

Examination of publicly available records has indicated that prices of comparable land in the area have been relatively constant, selling in a range from 140000 to 160000 during the past 18 months.

For Land, prepare any necessary adjusting entries. If in any case your adjusting entry relies upon an assumption, provide that assumption.

Explanation / Answer

This is an accurate entry to document the land purchase because there were no commitments made on June 17 when the stock was on sale for $77.50 per share, and to base the purchase on this price is not good. Because Mandeville has assumed the debts concerning to the assessment and taxes, this is also documented as the acquisition cost.

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