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Q36PGB

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Horngren'S Financial And Managerial Accounting
Found in: Page 535

Short Answer

Question: P9-36B Determining asset cost and recording partial-year depreciation

Safe Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:

a

Purchase price of three acres of land

$86,000

b

Delinquent real estate taxes on the land to be paid by safe parking

6,300

c

Additional dirt and earth removing

8,400

d

Title insurance and the land acquisition

3,400

e

Fence around the boundary of the property

9,600

f

Building permit for building

900

g

Architect’s fee for design of building

20,100

h

Signs near the front of property

9,000

i

Material used to construct the building

217,000

J

Labor to construct the building

172,000

k

Interest cost on construction loan for the building

9,500

l

Parking lots on the property

29,400

m

Lights for parking lots

11,600

n

Salary of construction supervisor (80% to building; 20% to parking lot and concrete walks)

80,000

o

Furniture

11,700

p

Transportation of furniture from seller to the building

1,900

q

Additional fencing

6,900

Safe Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value.

Requirements

1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset.

2. All construction was complete and the assets were placed in service on September 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar.

Answer

  1. Cost of different assets:

    Land

    $104,100

    Land improvement

    $82,500

    Building

    $483,500

    Furniture

    $13,600

    1. Partial depreciation of different assets:

      Land improvement

      $5,500

      Building

      $4,029

      Furniture

      $453

See the step by step solution

Step by Step Solution

Step 1: Definition of Depreciation

The business entity spreads the cost of acquiring fixed assets over the time period it is useful. Such a process of spreading the cost is known as depreciation. It can be done using various available methods.

Step 2: Calculation of cost of various assets

Cost of land:

Particular

Amount ($)

Purchase price of three acres of land

$86,000

Delinquent real estate taxes on the land to be paid by discount parking

6,300

Additional dirt and earthmoving

8,400

Title insurance on the land acquisition

3,400

Total cost of land

$104,100

Cost of land improvements:

Particular

Amount ($)

Fencing around land

$9,600

Sign near the front of the property

9,000

Parking lot

29,400

Lights for parking lot

11,600

Salary of construction supervisor

16,000

Additional fencing

6,900

Total cost of land improvement

$82,500

Cost of building:

Particular

Amount ($)

Building permit for building

$900

Architect fees

20,100

Material to construct building

217,000

Labor to construct building

172,000

Interest cost on construction loan

9,500

Salary of construction supervisor

64,000

Total cost of building

$483,500

Cost of furniture:

Particular

Amount ($)

Furniture

$11,700

Transportation cost of furniture

1,900

Total cost of furniture

$13,600

Step 3: Calculation of Partial Year Depreciation Expense for year Ended 31st Dec

Working note:

1. Land improvement depreciation:

2. Building:

3.Furniture:

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