Question

Sunland Company purchased land and a building on April 1, 2019, for $363,600. The company paid $108,000 in cash and signed a 5% note payable for the balance. At that time, it was estimated that the land was worth $142,000 and the building, $221,600. The building was estimated to have a 25-year useful life with a $33,500 residual value. The company has a December 31 year end, prepares adjusting entries annually, and uses the straight-line method for buildings; depreciation is calculated to the nearest month. The following are related transactions and adjustments during the next three years.

2019
Dec. 31		Recorded annual depreciation.
31		Paid the interest owing on the note payable.
2020
Feb. 17		Paid $210 to have the furnace cleaned and serviced.
Dec. 31		Recorded annual depreciation.
31		Paid the interest owing on the note payable.
31		The land and building were tested for impairment. The land had a recoverable amount of $113,300 and the building, $232,000.
2021
Jan. 31		Sold the land and building for $304,000 cash: $107,000 for the land and $197,000 for the building.
Feb. 1		Paid the note payable and interest owing.

(a)

Record the above transactions and adjustments, including the acquisition on April 1, 2019. (Hint: Any impairment loss for land is credited directly to the Land account.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem. Round answers to 0 decimal places, e.g. 5,275.)

2019

Date	Account Titles and Explanation	Debit	Credit
Apr. 1
	(To record purchase of property)
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record depreciation)
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record interest)

2020

Date	Account Titles and Explanation	Debit	Credit
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record payment of furnace cleaning)
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record depreciation)
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record interest)
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record land impairment)
Dec. 31
	(To record building impairment)

2021

Date	Account Titles and Explanation	Debit	Credit
Jan. 31Feb. 1Feb. 17Apr. 1Dec. 31
	(To record depreciation)
Jan. 31
	(To record disposal)
Feb. 1
	(To record payment of note)

Answer 1

Credit 2019 Date Account Titles and Explanations Apr-01 Land Building Notes Payable Cash (To record the purchase of property) Debit $ 142,000 $ 221,600 $ 255,600 $ 108,000 Working: Notes Payable = $353,600 - $108,000 = $255,600 Depeciation Expense = ((221,600 - 33,500)/25) *9/12 = $ 5,643 Interest Expense = $255,600 * 5% * 9/12 = $ 9,585 $ 5,643 Dec-31 Depreciation Expense Accumulated Depreciation (To record depreciation) $ 5,643 $ 9,585 Dec-31 Interest Expense Cash (To record interest) $ 9,585

Debit Credit 2020 Date Account Titles and Explanations Feb-17 Repairs Cash (To record payment of furnace cleaning) $ 210 $ 210 Working: Depeciation Expense = ((221,600 - 33,500)/25) = $ 7,524 Interest Expense = $255,600 * 5% = $ 12,780 $ 7,524 Dec-31 Depreciation Expense Accumulated Depreciation (To record depreciation) $ 7,524 $ 12,780 Dec-31 Interest Expense Cash (To record interest) $ 12,780 An asset is said to be impaired when its carrying amount exceeds the recoverable amount. No depreciation is charged on land, therefore its carying value on Dec 31, would be $142,000. It is given that recoverable amount of land is $113,300, thus resulting in an impairment loss of $28,700. $ 28,700 Dec-31 Impairment Expense Land (To record land impairment) $ 28,700 There will be no impairment in case of building as its carrying amount is less than its recoverable amount as shown below Carrying amount = 221,600 - 5643 - 7524 = $ 208,433 Recoverable amount = $ 232,000 As a result, no journal entry will be passed for recognising the impairment loss on building.

Credit 2021 Date Account Titles and Explanations Jan-31 Depreciation Expense Accumulated Depreciation (To record depreciation) Debit 627 $ $ 627 $ $ $ 304,000 13,794 17,106 Jan-31 Cash Accumulated Depreciation Loss on sale of building Land Building (To record disposal) Working: Depeciation Expense = ((221,600 - 33,500)/25)*1/12 = $ 627 Accumulated Depreciation as on Jan-31 = $(5,643+7,524+627) = $ 13,794 Loss on Sale of Land and Building = (113,300-107,000)+(221,600-13,794-197,000) = $ 17,106 Interest Expense = $255,600 * 5% *1/12 = $ 1,065 $ $ 113,300 221,600 $ $ 255,600 1,065 Feb-01 Notes Payable Interest Expense Cash (To record payment of Note) $ 256,665