Question

PROBLEMS 10-1 (L01) EXCEL (Classification of Acquisiti in the property, plant, and equipment section of Reagan C her Asset Costs) At December 31,2016, certain accounts included ompany e sheet ha d the following Land Buildings Leasehold i Equipment During 2017, the following transactions occurred. 1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was S120皿Shortly after acq at a cost of $41,000. A new building was constructed for $330,000 plus the following costs. 2. uisition, the building was demolished Excavation fees Architectural design fees Building permit fee Imputed interest on funds used 11,000 2,500 during construction (stock financing) The building was completed and occupied on September 30, 2017. 3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale 4. During December 2017, costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December manner as land improvements.) 31, 2019, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same of production for the machines. The invoice price of the machines was $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2017 were $17,500. 5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units Instructions (a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2017 Leasehold Improvements Land Buildings (b) List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these Culatod mounts included in the property, plant, and equipment section Disregard the related accumulated depreciation accounts. items should be included in Reagan's financial statements.

Answer 1

Solution:

1)

Land	1,614,000
Buildings	1,271,500
Leasehold improvements	749,000
Equipment	967,700

　

Working:

Analysis of Land Account
Balance, January 1			230,000
Land site number 621
Acquisition cost		850,000
Commission to real estate agent		51,000
Clearing costs	35,000
Minus: amounts recovered	13,000	22,000
Total land site number 621			923,000
Land site number 622
Land value		300,000
Building value		120,000
Demolition cost		41,000
Total land site number 622			461,000
Balance at December 31			1,614,000

Analysis of Buildings Account		890,000
Balance at January 1
Cost of new building constructed on land site number 622
Construction costs	330,000
Excavation fees	38,000
Architectural design fees	11,000
Building permit fee	2,500	381,500
Balance at December 31		1,271,500

Analysis of Leasehold Improvements Account
Balance at January 1	660,000
Office space	89,000
Balance at December 31	749,000

Analysis of Equipment Account
Balance at January 1		875,000
Cost of the new equipment acquired
Invoice price	87,000
Freight costs	3,300
Installation costs	2,400	92,700
Balance at December 31		967,700

　

2)

-- Interest on common stock was not included and according to GAAP it should it be included

-- Land site No. 623 was acquired for $650,000 and is required to be included in the financial statements under investments

-- The payments of royalty weren't included in the balance sheet however should be reported in income statement