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Q9-30PGA

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Horngren'S Financial And Managerial Accounting
Found in: Page 532

Short Answer

Determining asset cost and recording partial-year depreciation, straight-line Discount 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 $ 80,000

b. Delinquent real estate taxes on the land to be paid by Discount Parking 6,300

c. Additional dirt and earthmoving 9,000

d. Title insurance on the land acquisition 3,200

e. Fence around the boundary of the property 9,600

f. Building permits for the building 1,000

g. Architect’s fee for the design of the building 20,700

h. Signs near the front of the property 9,300

i. Materials used to construct the building 215,000

j. Labor to construct the building 175,000

k. Interest cost on the construction loan for the building 9,400

l. Parking lots on the property 28,500

m. Lights for the parking lots 11,200

n. Salary of construction supervisor (80% to building; 20% to parking lot and concrete walks) 50,000

o. Furniture 11,200

p. Transportation of furniture from seller to the building 2,200

q. Additional fencing 6,600

Discount 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’s

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 October 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar

Answer

Total Value of Cost of land = $98,500

Total Value of Land Improvements = $75,200

Total Value of Building = $461,100

Total Value of Furniture = $13,400

See the step by step solution

Step by Step Solution

Step 1: Definition of Depreciation

The expenses charged to report the decline in the company's fixed assets value are known as depreciation expenses.

Step 2: Calculation of total cost for each asset

Cost of land:

Particulars

Amount $

Purchase price of three acres of land

$80,000

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

6,300

Additional dirt and earthmoving

9,000

Title insurance on the land acquisition

3,200

Total cost of land

$98,500

Cost of land improvements:

Particulars

Amount $

Fencing around land

$9,600

Sign near the front of the property

9,300

Parking lot

28,500

Lights for parking lot

11,200

Salary of construction supervisor

10,000

Additional fencing

6,600

Total cost of land improvement

$75,200

Cost of building:

Particulars

Amount $

Building permit for building

$1,000

Architect fees

20,700

Material to construct building

215,000

Labor to construct building

175,000

Interest cost on construction loan

9,400

Salary of construction supervisor

40,000

Total cost of building

$461,100

Cost of furniture:

Particulars

Amount $

Furniture

$11,200

Transportation cost of furniture

2,200

Total cost of furniture

$13,400

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

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec

Depreciation expenses – Land improvement

1,254

Accumulated depreciation – Land improvement

1,254

31 Dec

Depreciation expenses – Building

2,882

Accumulated depreciation – Building

2,882

31 Dec

Depreciation expenses – Furniture

335

Accumulated depreciation – Furniture

335

Working note:

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