Problem: a. For each of the items listed above, indicate whether the cost should

Question

Problem:

a.  

For each of the items listed above, indicate whether the cost should be debited to land, buildings, equipment, land improvements, or an expense account.

b.  

For each item that was expensed, explain why it was not appropriate to add the amount to an asset.

C & M Securities made several expenditures during the current fiscal year. including the following Amount Description of Expenditure 1. $150,000 Acquisition of a piece of land to be used as a building site 3,000 7,500 290,000 Demolition of a small building on the land, to make way for the new building Levelling of the land to prepare it for construction of the new building Construction of the new building 12,000Paving of a parking lot beside the building 6,000 Addition of decorative landscaping around the building (such as planting flowers and ornamental shrubs) 80,000 Purchase of a new piece of equipment 6,000 Sales taxes on the new equipment 3,000 Installation of the new equipment 1,500 Testing and adjustment of the new equipment prior to its use 1,000Minor rcpairs to somc old cquipment 7,000 Major overhaul of an old piece of equipment, extending its useful life by three years 1,200 Routine maintenance of equipment 2,000 Replacement of windows broken by disgruntled employees during a labour dispute 12 13

Explanation / Answer

please find answer :-

1full amount (150000$) should be capitalized as land

2.3000$ should be debited to improvment of land

3.7500$ should be debited to improvment of land

4.290000 Capitalized as building

5.12000 shold also be debited to building as same is also related to construction of building

6.6000 should be expensed out as same is not qualify for capitalization as not a impovement cost

7.80000 shold be debited to equipment

8.6000 if no credit available the should be debited to equipment

9.3000 should be debited to equipment as same is required to start the equipment

10.1500 should be debited to equipment as same is required to start the equipment

11.1000 should be expensed out as not related to new asset

12.7000 should be debited to asset as same is imporving life of the asset

13.1200 routine maintenance should be debited as expense as regular in nature

14.2000 should be charged to p&l as a maintenance expense

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