Question

Required information [The following information applies to the questions displayed below) National Bank has several departments that occupy both floors of a two-story building. The departmental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow NI $ 13,500 20.250 9,250 6,000R R Depreciation-Building Interest-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total occupancy cost 1,875 2.250 4,125 $ 48,00 The building has 3,000 square feet on each floor. In prior periods, the accounting manager merely divided the $48.000 occupancy cost by 6,000 square feet to find an average cost of $8 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied Diane Linder manages a first floor department that occuples 1100 square feet and Juan Chitro manage a second floor department that occupies 1700 square feet of floor space. In discussing the departeleports the second floor manager questions whether using the same rate per square foot for all departments makes sense because the f loor space is more valuable. This manager also references a recent real estate study of average local rental costs for simir space that shows first floor space worth $30 per square foot and second floor space worth $10 per square foot excluding costs for heating. lighting, and maintenance). 2 Allocate the depreciation interest and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative market values of the floor space Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in proportion to the square feet occupled ignoring floor space market values. (Round cost answers to 2 decimal places. Round your Intermediate calculations to 2 decimal places.)

Answer 1

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National Bank
Problem 24-2A Part 1
Allocation using current allocation method:
Rate per square footage is $ 8.25.
	A	B	C=A*B
Department	Square Footage	Rate	Total
Linder's Dept.	1,100.00	8.00	8,800.00
Chiro's Dept.	1,700.00	8.00	13,600.00
Problem 24-2A Part 2
Calculation of market value of Floors:
Department	Square Footage	Market Rate	Market Value
1st Floor	4,000.00	30.00	120,000.00
2nd Floor	4,000.00	10.00	40,000.00
			160,000.00
Calculation of market value of departments:
Department	Square Footage	Rate	Total
Linder's Dept.	1,100.00	30.00	33,000.00
Chiro's Dept.	1,700.00	10.00	17,000.00
Calculation of depreciation, interest and tax occupancy cost on the basis of market value:
Depreciation	13,500.00
Interest	20,250.00
Taxes- Building and Land	6,000.00
Total cost	39,750.00
Total Market value	160,000.00
Cost per dollar of market value	0.25
Allocation of depreciation, interest and tax occupancy cost on the basis of market value:
Department	Total Market Value	Cost per dollar of market value		Total
Linder's Dept.	33,000.00	0.25		8,198.44
Chiro's Dept.	17,000.00	0.25		4,223.44
				12,421.88
Calculation of heating, lightning and maintenance cost on the basis of floor space:
Heating	1,875.00
Lightning	2,250.00
Maintenance cost	4,125.00
Total cost	8,250.00
Floor Space	8,000.00
Cost per square feet	1.03
Allocation of heating, lightning and maintenance cost on the basis of floor space:
Department	Square Footage	Rate	Total
Linder's Dept.	1,100.00	1.03	1,134.38
Chiro's Dept.	1,700.00	1.03	1,753.13
Total cost to both departments:
Cost		Linder's Dept.	Chiro's Dept.
Depreciation, interest and tax occupancy cost:		8,198.44	4,223.44
Heating, lightning and maintenance cost:		1,134.38	1,753.13
Total cost		9,332.81	5,976.56
Floor space occupied		1,100.00	1,700.00
Cost per Floor space		8.48	3.52