Question

Cala Manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. The negotiated purchase price is \(280,000 for the lot plus \)110,000 for the old building. The company pays \(33,500 to tear down the old building and \)47,000 to fill and level the lot. It also pays a total of \(1,540,000 in construction costs—this amount consists of \)1,452,200 for the new building and $87,800 for lighting and paving a parking area next to the building. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.

Short answer

The total cost of the building is $624,500.

Step-by-step solution

Computation of total cost of building

$\begin{array}{rcl}\mathbf{total}\mathbf{}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{}\mathbf{of}\mathbf{}\mathbf{ }\mathbf{building}& \mathbf{=}& \mathbf{purchase}\mathbf{ }\mathbf{}\mathbf{price}\mathbf{}\mathbf{ }\mathbf{of}\mathbf{}\mathbf{ }\mathbf{lot}\mathbf{+}\mathbf{price}\mathbf{}\mathbf{ }\mathbf{of}\mathbf{}\mathbf{ }\mathbf{old}\mathbf{}\mathbf{ }\mathbf{ }\mathbf{building}\mathbf{+}\mathbf{tear}\mathbf{}\mathbf{ }\mathbf{down}\mathbf{}\mathbf{ }\mathbf{cost}\\ & & \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{+}\mathbf{leveling}\mathbf{ }\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{construction}\mathbf{ }\mathbf{}\mathbf{cost}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{\$}\mathbf{280}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{110}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{33}\mathbf{,}\mathbf{500}\mathbf{+}\mathbf{\$}\mathbf{47}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{54}\mathbf{,}\mathbf{000}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{ }\mathbf{\$}\mathbf{624}\mathbf{,}\mathbf{500}\mathbf{.}\end{array}$

Journal entry

Particulars	Amount ($)	Amount (Cr.)
Building	$624,500
Cash		$624,500
Record of building