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Chapter 10: 1BE (page 502)
Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.
$38,600 the prior
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(Purchase of Computer with Zero-Interest-Bearing Debt) Cardinals Corporation purchased a computer on December 31, 2016, for \(105,000, paying \)30,000 down and agreeing to pay the balance in five equal installments of $15,000 payable each December 31 beginning in 2017. An assumed interest rate of 10% is implicit in the purchase price.
Instructions
(Round to two decimal places.)
(Classification of Land and Building Costs) Spitfire Company was incorporated on January 2, 2018, but was unable to begin manufacturing activities until July 1, 2018, because new factory facilities were not completed until that date.
The Land and Buildings account reported the following items during 2018.
January 31 | Land and buildings | \(160,000 |
February 28 | Cost of removal of building | 9,800 |
May 1 | Partial payment of new construction | 60,000 |
May 1 | Legal fees paid | 3,770 |
June 1 | Second payment on new construction | 40,000 |
June 1 | Insurance premium | 2,280 |
June 1 | Special tax assessment | 4,000 |
June 30 | General expenses | 36,300 |
July 1 | Final payment on new construction | 30,000 |
December 31 | Asset write-up | 53,800 |
399,950 | ||
December 31 | Depreciation鈥�2018 at 1% | (4,000) |
December 31, 2018 | Account balance | \)395,950 |
The following additional information is to be considered.
1. To acquire land and building, the company paid \(80,000 cash and 800 shares of its 8% cumulative preferred stock, par value \)100 per share. Fair value of the stock is \(117 per share.
2. Cost of removal of old buildings amounted to \)9,800, and the demolition company retained all materials of the building.
3. Legal fees covered the following.
| Cost of organization | \( 610 |
| Examination of title covering purchase of land | 1,300 |
| Legal work in connection with construction contract | 1,860 |
| \)3,770 |
4. Insurance premium covered the building for a 2-year term beginning May 1, 2018.
5. The special tax assessment covered street improvements that are permanent in nature.
6. General expenses covered the following for the period from January 2, 2018, to June 30, 2018.
| President鈥檚 salary | \(32,100 |
| Plant superintendent鈥檚 salary鈥攕upervision of new building | 4,200 |
| \)36,300 | |
7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building \(53,800, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.
8.Estimated life of building鈥�50 years. Depreciation for 2018鈥�1% of asset value (1% of \)400,000, or $4,000).
Instructions
(Interest During Construction) Grieg Landscaping began construction of a new plant on December 1, 2017. On this date, the company purchased a parcel of land for \(139,000 in cash. In addition, it paid \)2,000 in surveying costs and \(4,000 for a title insurance policy. An old dwelling on the premises was demolished at a cost of \)3,000, with \(1,000 being received from the sale of materials.
Architectural plans were also formalized on December 1, 2017, when the architect was paid \)30,000. The necessary building permits costing \(3,000 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2018 as follows.
Date of Payment | Amount of Payment |
March 1 | \)240,000 |
May 1 | 330,000 |
July 1 | 60,000 |
The building was completed on July 1, 2018.
To finance construction of this plant, Grieg borrowed \(600,000 from the bank on December 1, 2017. Grieg had no other borrowings. The \)600,000 was a 10-year loan bearing interest at 8%.
Instructions
Compute the balance in each of the following accounts at December 31, 2017, and December 31, 2018. (Round amounts to the nearest dollar.)
(Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to Duffner Company.
No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed.
Materials used | \)12,500 |
Factory supplies used | 900 |
Direct labor incurred | 15,000 |
Additional overhead (over regular) caused by construction of machinery, excluding factory supplies used | 2,700 |
Fixed overhead rate applied to regular manufacturing operations | 60% of direct labor cost |
Cost of similar machinery if it had been purchased from Outside suppliers | 44,000 |
Instructions
Prepare journal entries on the books of Duffner Company to record these transactions.
Question: The Buildings account of Postera Inc. includes the following items that were used in determining the basis for depreciating the cost of a building.
Organization and promotion expenses. (b) Architect鈥檚 fees. (c) Interest and taxes during construction. (d) Interest revenue on investments held to fund construction of a building. Do you agree with these charges? If not, how would you deal with each of the items above in the corporation鈥檚 books and in its annual financial statements?
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