Exercise 10-1 (Algo) Acquisition costs; land and building [LO10-1]
On March 1, 2024, Beldon Corporation purchased land as a factory site for $80,000. An old building on the property was demolished, and construction began on a new building that was completed on December 15, 2024. Costs incurred during this period are listed below:
| Demolition of old building | $ 9,000 |
| Architect’s fees (for new building) | 19,000 |
| Legal fees for title investigation of land | 5,500 |
| Property taxes on land (for period beginning March 1, 2024) | 5,000 |
| Construction costs | 700,000 |
| Interest on construction loan | 10,000 |
Salvaged materials resulting from the demolition of the old building were sold for $4,000.
Required:
Determine the amounts that Beldon should capitalize as the cost of the land and the new building.
Exercise 10-2 (Algo) Acquisition cost; equipment [LO10-1]
Oaktree Company purchased new equipment and made the following expenditures:
| Purchase price | $ 58,000 |
| Sales tax | 3,500 |
| Freight charges for shipment of equipment | 830 |
| Insurance on the equipment for the first year | 1,030 |
| Installation of equipment | 2,300 |
The equipment, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid in cash.
Required:
Prepare the necessary journal entries to record the above expenditures.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
Exercise 10-3 (Algo) Acquisition costs; lump-sum acquisition [LO10-1, 10-2]
Samtech Manufacturing purchased land and a building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:
| Title insurance | $ 19,000 |
| Legal fees for drawing the contract | 6,500 |
| Pro-rated property taxes for the period after acquisition | 39,000 |
| State transfer fees | 4,300 |
An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.7 and $1.3 million, respectively. Shortly after acquisition, Samtech spent $85,000 to construct a parking lot and $43,000 for landscaping.
Required:
- Determine the initial valuation of each asset Samtech acquired in these transactions.
- Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $280,000 and the salvaged materials were sold for $7,500. In addition, Samtech spent $82,000 clearing and grading the land in preparation for the construction of a new building.
Exercise 10-14 (Algo) Nonmonetary exchange [LO10-6]
Cedric Company recently traded in an older model of equipment for a new model. The old model’s book value was $360,000 (original cost of $780,000 less $420,000 in accumulated depreciation) and its fair value was $400,000. Cedric paid $80,000 to complete the exchange which has commercial substance.
Required:
Prepare the journal entry to record the exchange.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
Problem 10-3 (Algo) Acquisition costs [LO10-1, 10-4, 10-6]
The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2023:
| Plant Asset | Accumulated Depreciation | |
| Land | $ 400,000 | $ — |
| Land improvements | 205,000 | 50,000 |
| Building | 1,750,000 | 355,000 |
| Equipment | 1,168,000 | 410,000 |
| Automobiles | 175,000 | 117,000 |
Transactions during 2024 were as follows:
- On January 2, 2024, equipment was purchased at a total invoice cost of $285,000, which included a $6,000 charge for freight. Installation costs of $32,000 were incurred in addition to the invoice cost.
- On March 31, 2024, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $24,000. The fair value of the building on the day of the donation was $17,000.
- On May 1, 2024, expenditures of $55,000 were made to repave parking lots at Pell’s plant location. The work was necessitated by damage caused by severe winter weather. The repair doesn’t provide future benefits beyond those originally anticipated.
- On November 1, 2024, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell’s common stock that had a market price of $39 per share. Pell paid legal fees and title insurance totaling $28,000. Shortly after acquisition, the building was razed at a cost of $40,000 in anticipation of new building construction in 2025.
- On December 31, 2024, Pell purchased a small storage building by giving $16,250 cash and an old automobile purchased for $20,500 in 2017. Depreciation on the old automobile recorded through December 31, 2024, totaled $14,000. The fair value of the old automobile was $4,250.
Required:
Prepare a schedule analyzing the changes in each of the plant assets during 2024.