E7-36B. (Learning Objective 1: Measure the cost of plant assets) Pierce Self Sto
ID: 2547963 • Letter: E
Question
E7-36B. (Learning Objective 1: Measure the cost of plant assets) Pierce Self Storage purchased land, paying $145,000 cash as a down payment and signing a $175,000 note pay- able for the balance. Pierce also had to pay delinquent property tax of $1,000, title insurance costing $2,500, and $4,000 to level the land and remove an unwanted building. The company paid $55,000 to add soil for the foundation and then constructed an office building at a cost of $800,000. It also paid $53,000 for a fence around the property, $19,000 for the company sign near the property entrance, and $11,000 for lighting of the grounds. What is the capitalized cost of each of Pierce's land, land improvements, and building?Explanation / Answer
Cost of Land, Land Improvement, and Building is as calculated below:
Land When a land is purchased then the price paid to buy the property should be debited to the land account. Other expenditures such as the commission to agents, paving cost, clearing cost is also debited to land. The land is having an unlimited life so it is not depreciated.
Land improvement All the improvements to land which have a limited life such as parking lot, lights around the property will be debited to Land Improvement account.
Building Amount paid to buy the building and all expenditure required to put the building in usable condition are charged to building account. In case of construction net contract price plus all expenditure required to put the building in usable condition is debited to building account.
S.No Cost Incurred Land Land Improvement Building 1 Cash Down payment 145,000 2 Note Payable signed 175,000 3 Property tax 1,000 4 Title Insurance 2,500 5 Cost to level the land and remove unwanted building 4,000 6 Add Soil for the foundation 55,000 7 Construction of office building 800,000 8 Fencing Cost 53,000 9 Company sign near the property entrance 19,000 10 Lighting of the grounds 11,000 327,500 83,000 855,000Related Questions
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