Question

1. Julie paid all costs related to the following transactions in cash.

• On April 1, 2013, Julie purchased a second office building for $1.2 million. Julie estimates that the value of the land is $200,000 and the remaining amount that she paid represents the value of the building.
• In addition to the amount that Julie paid for the building, she also paid a 10% commission on the sales price to the real estate broker, 1% in real estate transfer taxes, and $13,250 in additional closing costs.
• The city requires a safety inspection when a building is sold and every year after. On April 2, Julie paid $750 for the inspection.
• The inspector required Julie to replace the front doors of the building at a cost of $30,000. The new doors were installed on April 4, and Julie was able to sell the old doors to an architectural salvage firm for $5,000 on the same day.

Help Julie record the transactions related to her office building.

Answer 1

Capitalization of land and building:

Please give a thumbs up if you find this answer useful!

Journal entry for assets:

1 Credit $ $ Debit 224,209 1,121,042 $ 1,345,251 Journal Entries in Books of Julie Date Particulars April 1, 2013 Land Building $1,146,792 - $750 -$ 30,000 +$5,000) Cash (Land and building acquired.) April 2, 2013 Building Cash (Inspection cost for building made.) April 4, 2013 Building ($30,000 - $5,000) Cash (Cost of changing front doors.) Total $ 750 $ 750 25,000 $ 25,000 $ 1,371,001 $ 1,371,001

Working:

Amount $ 200,000 20,000 2,000 2,209 224,209 Assets to be capitalized: Land: Land purchase cost Commission to real estate broker ($200,000 @ 10%) Real estate transfer tax ($200,000 X 1%) Closing cost ($13,250 X 0.2 mil/1.2 mil) Amount of Land to be capitalized (April 1) Building: Purchase Cost ($1,200,000 - $200,000) Commission to real estate broker ($1,000,000 @ 10%) Real estate transfer tax ($1,000,000 X 1%) Closing cost ($13,250 X 1 mil/1.2 mil) Inspection cost (April 2) Front doors cost (April 4) Salvage value of doors (April 4) Amount of Building to be capitalized 1,000,000 100,000 10,000 11,042 750 30,000 (5,000) 1,146,792