Question

ACCT 302 - Team Problem 1: Chapter 10 Spring 2020 During 2017, Grow-a-Lot, Inc underwent a major expansion. In order to expand, they entered into the following transactions 1 On January 1, they purchased a plot of land, warehouse, and a piece of equipment la Widget Maker) for a purchase price of $1,200,000. In addition to that cost, they paid 2% commission for finding the combination of all assets, $28.000 in back taxes, and assumed an outstanding note payable of $187.000. They paid $20,000 for demolition and removal of small utility building on the property. They also paid $13,000 to install a new parking lot. The fair value of the land, warehouse, and equipment were $220,000, 5870,000, and 5415,000, respectively. a Record the chase of the land warehouse equipment and parking lot 2. After the purchase in 1, Grow-a-Lot began constructing a new piece of equipment, a Doo-Dad Constructor. They began construction on February 1, 2017. They paid invoices during the year as described in the below table. Assume all invoices were paid in full, Date Invoice Received Date Invoice Paid Involce Amount March 1, 2017 April 1, 2017 $110,000 July 30, 2017 September 15, 2017 $283,000 December 10, 2017 January 15, 2018 $172.000 In addition to the contractor fees noted in the above table, Grow-a-Lot determined $72,000 of salary expense was directly related to construction of the Doo-Dad Constructor. The salary expense was spread evenly over the February 1-December 31 construction period. in anticipation of the construction of the Doo-Dad Constructor, Grow-a-Lot obtained a $75,000 loan for construction and repair. The loan is due in 5 years, carries an interest rate of 8%, and the Doo-Dad constructor is pledged as collateral. Grow-a-Lot had 3 other outstanding loans during the year, as follows: 7% 11% Loan Start Date Duration Principal Interest Rate April 12, 2001 30 years $1,250,000 November 10, 2010 10-years $500,000 July 4, 2015 12-years $300.000 a. Record the journal entry for the constructed equipment and total interest for the year Assume all interest is paid on December 31. b. Assuming the details above except the specific construction loan is for $200.000 instead of $75.000. Record the journal entry for the constructed equipment and total interest for the year. Assume all interest is paid on December 31 3. Because the company's new facility is so much larger, Grow-a-Lot had to trade in their forklift for a new fork-lift. Specifically, they exchanged their Ant-Man brand forklift (with a remaining useful life of 2 years, a max lifting capacity of 1,000 lbs, a historic cost of $22,000 and accumulated depreciation of $18,000) for a brand new GIGANTOR brand forklift. The GIGANTOR forklift has a lifting capacity of 24,000 lbs, a useful life of 12-years, and a fair market value of $63,000. Grow-a-Lot is receiving 55,200 in trade-in value for the Ant-Man forklift. They paid no cash, but signed a $60,000 no interest, 3-year note payable. Equivalent notes had an interest rate of 6.0%. This transaction occurred on March 1, 2017.

Answer 1

1.

Particulars	Debit ($)	Credit ($)
Land	2,20,000
warehouse	8,70,000
Eqipment	4,15,000
Revaluation surplus		2,20,000
Cash/Bank		10,98,000
Note payable		1,87,000
	15,05,000	15,05,000

Working note.

Particulars	Amount in $
Cost of asset	12,00,000
Commission	24,000
Back taxes (assuming cost of Grow a lot)	28,000
Demolision	20,000
install parking slot	13,000
Total cost (A)	12,85,000
Fair value of assets	Amount in $
Land	2,20,000
warehouse	8,70,000
Eqipment	4,15,000
Total fair value of assets (B)	15,05,000
Revaluation surplus B-A	2,20,000

2. a)

Date	Particulars	Debit	Credit
March 1, 2017	Eqipement (A Doo-Dad Constructor)	1,10,000
	Vendor		1,10,000
April 1, 2017	Vendor	1,10,000
	Cash/bank		1,10,000
July 30, 2017	Eqipement (A Doo-Dad Constructor)	2,83,000
	Vendor		2,83,000
Sep 15, 2017	Vendor	2,83,000
	Cash/bank		2,83,000
Dec 10, 2017	Eqipement (A Doo-Dad Constructor)	1,72,000
	Vendor		1,72,000
Dec 31, 2017	Eqipement (A Doo-Dad Constructor)	72,000
	Salary expenses		72,000
	(Salary expenses capitalised)
Dec 31, 2017	Eqipement (A Doo-Dad Constructor)	5,500
	Bank		5,500
	( 11 months Interest expense capitalised)
Dec 31, 2017	Interest Expense	87,500
	Interest Expense	55,000
	Interest Expense	27,000
	Bank		1,69,500
	(Other term loan interest

b)

Date	Particulars	Debit	Credit
March 1, 2017	Eqipement (A Doo-Dad Constructor)	1,10,000
	Vendor		1,10,000
April 1, 2017	Vendor	1,10,000
	Cash/bank		1,10,000
July 30, 2017	Eqipement (A Doo-Dad Constructor)	2,83,000
	Vendor		2,83,000
Sep 15, 2017	Vendor	2,83,000
	Cash/bank		2,83,000
Dec 10, 2017	Eqipement (A Doo-Dad Constructor)	1,72,000
	Vendor		1,72,000
Dec 31, 2017	Eqipement (A Doo-Dad Constructor)	72,000
	Salary expenses		72,000
	(Salary expenses capitalised)
Dec 31, 2017	Eqipement (A Doo-Dad Constructor)	14,667
	Bank		14,667
	( 11 months Interest expense capitalised)
Dec 31, 2017	Interest Expense	87,500
	Interest Expense	55,000
	Interest Expense	27,000
	Bank		1,69,500
	(Other term loan interest