Vaughn Co. purchased land as a factory site for $520,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $54,600 to raze the old buildings and sold salvaged lumber and brick for $8,190. Legal fees of $2,405 were paid for title investigation and drawing the purchase contract. Vaughn paid $2,860 to an engineering firm for a land survey, and $88,400 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,950, and a liability insurance premium paid during construction was $1,170. The contractor's charge for construction was $3,562,000. The company paid the contractor in two installments: $1,560,000 at the end of 3 months and $2,002,000 upon completion. Interest costs of $221,000 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Vaughn Co. Assume that the land survey was for the building. Cost of the Land $ Cost of the Building $
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Early in 2019, Desert, Co. finalized plans to expand operations. The first stage was completed on January 19th with the purchase of a tract of land to be used as the location for their new office complex. The land and existing building were purchased for $750,000, paying cash. Title search, title insurance, back property taxes and other closing costs totaling $20,000 were paid at closing. During February, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Salvaged materials from the demolished building were sold for proceeds of $10,000. Construction of the new office complex began on March 1 and was completed on November 30, 2019. Construction expenditures paid to sub-contractors were made as follows: March 1 $ 900,000 June 1 $1,200,000 Sept 1 $1,500,000 Nov 1 $1,800,000 Desert borrowed a $2,000,000, 8%, 2-year note on February 1st to help finance construction. Interest will be paid annually. The company's only other outstanding debt during all of 2019 was a $3,100,000, 9%, 10-year note payable. In December, the company purchased equipment and furniture for a lump-sum price of $500,000. The fair values of the equipment and furniture were $455,000 and $245,000, respectively. a) Given this information, determine the Historical Cost of the Land. b) Using the information presented in Question 1 above, determine the Historical Cost of the building after taking into consideration the capitalization of interest. c) Using the information presented in Question 1 above, determine the Interest Expense that Desert would report on their Income Statement for the year ended December 31, 2019. d) Using the information in Question 1 above, assume instead that Desert's only other outstanding debt during 2019 was a $500,000, 9%, three year note (i.e. all other information remains unchanged but Desert no longer has $3,000,000 of other non-specific borrowings; only $500,000 of non-specific debt). Determine the Avoidable Interest from this construction project under this scenario.
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On April 23, 20X1, Starlight Department Stores, Inc., acquired a 75-acre tract of land by paying $25,000,000 in cash and by issuing a six-month note payable for $5,000,000 and 1,000,000 shares of its common stock. On April 23, 20X1, Starlight's common stock was selling for $80.00 per share and had a $2.50 par value per share. The land had two existing buildings, one that Starlight intended to renovate and use as a warehouse, and another that Starlight intended to demolish to make way for the construction of a new department store. At the time of the purchase, the assessed values for property tax purposes for the land and the building to be renovated were $105,000,000 and $20,000,000, respectively. To complete the purchase, Starlight incurred legal fees of $25,000. The cost of demolishing the unneeded building was $50,000. Starlight paid $250,000 to have the land graded so that the new store could be built. Starlight paid a total of $100,000,000 to have the new department store built and another $25,000,000 to renovate the old building. Because parking would be needed for both the new department store and the warehouse, Starlight had a portion of the land covered with asphalt at a cost of $450,000. Starlight also paid $200,000 to install lighting for the parking lots and $75,000 to install decorative fencing and a parking access gate. During 20X1, Starlight paid $150,000 to new employees who will work at the new department store. The payments were made while the employees were being trained. All work was completed by December 31, 20X1, and the new store and warehouse were placed in service on January 1, 20X2. REQUIRED: Determine what costs should be assigned to the (1) Land; (2) Warehouse; (3) Department Store; and, (4) Land Improvements asset accounts. (Hint: The allocation of the original purchase price between the land and the warehouse should be made in proportion to the relative assessed values of the land and warehouse at the time of the purchase.)
P10.1 (LO 1) Excel (Classification of Acquisition and Other Asset Costs) At December 31, 2019, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet had the following balances: Land $230,000 Buildings 890,000 Leasehold improvements 660,000 Equipment 875,000 During 2020, the following transactions occurred. 1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000. 2. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the following costs. Excavation fees $38,000 Architectural design fees 11,000 Building permit fee 2,500 Imputed interest on funds used during construction (stock financing) 8,500 The building was completed and occupied on September 30, 2020. 3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale. 4. During December 2020, costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2022, 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 $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2020 were $17,500. Instructions a. Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2020. Land Leasehold Improvements Buildings Equipment Disregard the related accumulated depreciation accounts. b. List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these items should be included in Reagan's financial statements. (AICPA adapted)
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Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
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