10-5 Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Abstract company’s fee for title search $1,222 Architect’s fees 7,450 Cash paid for land and dilapidated building thereon 216,200 Removal of old building $47,000 Less: Salvage 12,925 34,075 Interest on short-term loans during construction 17,390 Excavation before construction for basement 44,650 Machinery purchased (subject to 2% cash discount, which was not taken) 152,750 Freight on machinery purchased 3,149 Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered 5,123 New building constructed (building construction took 6 months from date of purchase of land and old building) 1,139,750 Assessment by city for drainage project 3,760 Hauling charges for delivery of machinery from storage to new building 1,457 Installation of machinery 4,700 Trees, shrubs, and other landscaping after completion of building (permanent in nature) 12,690 Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Land Buildings Machinery and Equipment Other Abstract company’s fee for title search $ $ $ $ Architect’s fees Cash paid for land and old building Removal of old building Interest on short-term loans during construction Excavation before construction for basement Machinery purchased Freight on machinery purchased Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered New building constructed Assessment by city for drainage project Hauling charges for delivery of machinery from storage to new building Installation of machinery Trees, shrubs, and other landscaping after completion of building $ $ $ $ 10-8 On December 31, 2011, Hurston Inc. borrowed $7,110,000 at 12% payable annually to finance the construction of a new building. In 2012, the company made the following expenditures related to this building: March 1, $853,200; June 1, $1,422,000; July 1, $3,555,000; December 1, $2,844,000. Additional information is provided as follows. 1. Other debt outstanding 10-year, 11% bond, December 31, 2005, interest payable annually $9,480,000 6-year, 10% note, dated December 31, 2009, interest payable annually $3,792,000 2. March 1, 2012, expenditure included land costs of $355,500 3. Interest revenue earned in 2012 $116,130 (a) Determine the amount of interest to be capitalized in 2012 in relation to the construction of the building. The amount of interest $ (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit P10-1 At December 31, 2011, certain accounts included in the property, plant, and equipment section of Reagan Company’s balance sheet had the following balances. Land $232,370 Buildings 901,150 Leasehold improvements 665,950 Equipment 875,940 During 2012, the following transactions occurred. 1. Land site number 621 was acquired for $853,480. In addition, to acquire the land Reagan paid a $54,040 commission to a real estate agent. Costs of $42,970 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $15,680. 2. A second tract of land (site number 622) with a building was acquired for $422,740. The closing statement indicated that the land value was $301,960 and the building value was $120,780. Shortly after acquisition, the building was demolished at a cost of $50,000. A new building was constructed for $333,000 plus the following costs. Excavation fees $44,870 Architectural design fees 16,620 Building permit fee 3,410 Imputed interest on funds used during construction (stock financing) 9,320 The building was completed and occupied on September 30, 2012. 3. A third tract of land (site number 623) was acquired for $652,890 and was put on the market for resale. 4. During December 2012, costs of $98,050 were incurred to improve leased office space. The related lease will terminate on December 31, 2014, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.) 5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $86,250, freight costs were $3,860, installation costs were $2,810, and royalty payments for 2012 were $17,690.
Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2012. Disregard the related accumulated depreciation accounts.
Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2012. Disregard the related accumulated depreciation accounts.
Explain how assets acquired as a lump-sum purchase would be recorded. What exactly do we mean by the term “operational assets”? Explain how to account for interest incurred while a company is constructing an asset.
