Chapter 10: Q1BE (page 532)
Previn Brothers Inc. purchased land at a price of \(27,000. Closing costs were \)1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
$38,600
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(Nonmonetary Exchange) Cannondale Company purchased an electric wax melter on April 30, 2017, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.
List price of new melter | \(15,800 |
Cash paid | 10,000 |
Cost of old melter (5-year life, \)700 salvage value) | 11,200 |
Accumulated depreciation—old melter (straight-line) | 6,300 |
Secondhand fair value of old melter | 5,200 |
Instructions
Prepare the journal entry(ies) necessary to record this exchange, assuming that the exchange
(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 | \(160,000 |
February 28 | Cost of removal of building | 9,800 |
May 1 | Partial payment of new construction | 60,000 |
May 1 | Legal fees paid | 3,770 |
June 1 | Second payment on new construction | 40,000 |
June 1 | Insurance premium | 2,280 |
June 1 | Special tax assessment | 4,000 |
June 30 | General expenses | 36,300 |
July 1 | Final payment on new construction | 30,000 |
December 31 | Asset write-up | 53,800 |
399,950 | ||
December 31 | Depreciation—2018 at 1% | (4,000) |
December 31, 2018 | Account balance | \)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’s salary | \(32,100 |
| Plant superintendent’s salary—supervision of new building | 4,200 |
| \)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 \(53,800, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.
8.Estimated life of building—50 years. Depreciation for 2018—1% of asset value (1% of \)400,000, or $4,000).
Instructions
Question: Schwartzkopf Co. purchased for \(2,200,000 property that included both land and a building to be used in operations. The seller’s book value was \)300,000 for the land and \(900,000 for the building. By appraisal, the fair value was estimated to be \)500,000 for the land and $2,000,000 for the building. At what amount should Schwartzkopf report the land and the building at the end of the year?.
(Dispositions, Including Condemnation, Demolition, and Trade-In) Presented below is a schedule of property dispositions for Hollerith Co.
| Schedule of Property Dispositions | |||||
Cost | Accumulated Depreciation | Cash Proceeds | Fair Value | Nature of Disposition | |
Land | \(40,000 | — | \)31,000 | \(31,000 | Condemnation |
Building | 15,000 | — | 3,600 | — | Demolition |
Warehouse | 70,000 | \)16,000 | 74,000 | 74,000 | Destruction by fire |
Machine | 8,000 | 2,800 | 900 | 7,200 | Trade-in |
Furniture | 10,000 | 7,850 | — | 3,100 | Contribution |
Automobile | 9,000 | 3,460 | 2,960 | 2,960 | Sale |
The following additional information is available.
Land: On February 15, a condemnation award was received as consideration for unimproved land held primarily as an investment, and on March 31, another parcel of unimproved land to be held as an investment was purchased for \(35,000.
Building: On April 2, land and building were purchased at a total cost of \)75,000, of which 20% was allocated to the building on the corporate books. The real estate was acquired with the intention of demolishing the building, and this was accomplished during the month of November. Cash proceeds received in November represent the net proceeds from demolition of the building.
Warehouse: On June 30, the warehouse was destroyed by fire. The warehouse was purchased January 2, 2014, and had depreciated \(16,000. On December 27, the insurance proceeds and other funds were used to purchase a replacement warehouse at a cost of \)90,000.
Machine: On December 26, the machine was exchanged for another machine having a fair value of \(6,300 and cash of \)900 was received. (The exchange lacks commercial substance.)
Furniture: On August 15, furniture was contributed to a qualified charitable organization. No other contributions were made or pledged during the year.
Automobile: On November 3, the automobile was sold to Jared Winger, a stockholder.
Instructions
Indicate how these items would be reported on the income statement of Hollerith Co.
Question: When should debt security be classified as held-to-maturity?
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