91Ó°ÊÓ

(Treatment of Various Costs) Ben Sisko 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	\( 520
Architect’s fees	3,170
Cash paid for land and dilapidated building thereon	87,000
Removal of old building \)20,000
Less: Salvage 5,500	14,500
Interest on short-term loans during construction	7,400
Excavation before construction for basement	19,000
Machinery purchased (subject to 2% cash discount, which was not taken)	55,000
Freight on machinery purchased	1,340
Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered	2,180
New building constructed (building construction took 6 months from date of purchase of land and old building)	485,000
Assessment by city for drainage project	1,600
Hauling charges for delivery of machinery from storage to new building	620
Installation of machinery	2,000
Trees, shrubs, and other landscaping after completion of building	5,400

Instructions

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. Indicate how any costs not debited to these accounts should be recorded.

Step by step solution

01

Meaning of Fixed Asset

In accounting terms, a fixed asset is a tangible asset that is used for more than one year. All fixed assets except land have a tendency of depreciation on account of obsolescence; and the depreciation expense is charged to the books of accounts every year.

02

Determining the amount that should be debited to Land, Buildings, and to Machinery and Equipment

	Land	Buildings	M & E	Other
Abstract fees	$ 520
Architect’s fees
Cash paid for land and old building	87,000
Removal of the old building ($20,000 – $5,500)	14,500
Interest on loans during construction		7,400
Excavation before construction		19,000
Machinery purchased			$53,900	$1,100
Freight on machinery			1,340
Storage charges caused by non-completion of building				2,180
New building		485,000
Assessment by city	1,600
Hauling charges-machinery				620
Installation-machinery			2,000
Landscaping	5,400
	$109,020	$514,570	$57,240	$3,900

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