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Question;Allegro Supply Company, a newly formed corporation, incurred;the following expenditures related to Land, to Buildings, and to Machinery and;Equipment. Abstract company?s fee for title search $1,222 Architect?s fees;7,450 Cash paid for land and dilapidated building thereon 216,200 Removal of;old building $47,000 Less: Salvage 12,925 34,075 Interest on short-term loans;during construction 17,390 Excavation before construction for basement 44,650;Machinery purchased (subject to 2% cash discount, which was not taken) 152,750;Freight on machinery purchased 3,149 Storage charges on machinery, necessitated;by noncompletion of building when machinery was delivered 5,123 New building;constructed (building construction took 6 months from date of purchase of land;and old building) 1,139,750 Assessment by city for drainage project 3,760;Hauling charges for delivery of machinery from storage to new building 1,457;Installation of machinery 4,700 Trees, shrubs, and other landscaping after;completion of building (permanent in nature) 12,690 Determine the amounts that;should be debited to Land, to Buildings, and to Machinery and Equipment. Assume;the benefits of capitalizing interest during construction exceed the cost of;implementation. Land Buildings Machinery and Equipment Other Abstract company?s;fee for title search $ $ $ $ Architect?s fees Cash paid for land and old;building Removal of old building Interest on short-term loans during;construction Excavation before construction for basement Machinery purchased;Freight on machinery purchased Storage charges on machinery, necessitated by;noncompletion of building when machinery was delivered New building constructed;Assessment by city for drainage project Hauling charges for delivery of;machinery from storage to new building Installation of machinery Trees, shrubs;and other landscaping after completion of building $ $ $ $ 10-8 On December 31;2011, Hurston Inc. borrowed $7,110,000 at 12% payable annually to finance the;construction of a new building. In 2012, the company made the following;expenditures related to this building: March 1, $853,200, June 1, $1,422,000;July 1, $3,555,000, December 1, $2,844,000. Additional information is provided;as follows. 1. Other debt outstanding 10-year, 11% bond, December 31, 2005;interest payable annually $9,480,000 6-year, 10% note, dated December 31, 2009;interest payable annually $3,792,000 2. March 1, 2012, expenditure included;land costs of $355,500 3. Interest revenue earned in 2012 $116,130 (a);Determine the amount of interest to be capitalized in 2012 in relation to the;construction of the building. The amount of interest $ (b) Prepare the journal;entry to record the capitalization of interest and the recognition of interest;expense, if any, at December 31, 2012. (Credit account titles are automatically;indented when amount is entered. Do not indent manually.) Account Titles and;Explanation Debit Credit P10-1 At December 31, 2011, certain accounts included;in the property, plant, and equipment section of Reagan Company?s balance sheet;had the following balances. Land $232,370 Buildings 901,150 Leasehold;improvements 665,950 Equipment 875,940 During 2012, the following transactions;occurred. 1. Land site number 621 was acquired for $853,480. In addition, to;acquire the land Reagan paid a $54,040 commission to a real estate agent. Costs;of $42,970 were incurred to clear the land. During the course of clearing the;land, timber and gravel were recovered and sold for $15,680. 2. A second tract;of land (site number 622) with a building was acquired for $422,740. The;closing statement indicated that the land value was $301,960 and the building;value was $120,780. Shortly after acquisition, the building was demolished at a;cost of $50,000. A new building was constructed for $333,000 plus the following;costs. Excavation fees $44,870 Architectural design fees 16,620 Building permit;fee 3,410 Imputed interest on funds used during construction (stock financing);9,320 The building was completed and occupied on September 30, 2012. 3. A third;tract of land (site number 623) was acquired for $652,890 and was put on the;market for resale. 4. During December 2012, costs of $98,050 were incurred to;improve leased office space. The related lease will terminate on December 31;2014, and is not expected to be renewed. (Hint: Leasehold improvements should;be handled in the same manner as land improvements.) 5. A group of new machines;was purchased under a royalty agreement that provides for payment of royalties;based on units of production for the machines. Theinvoice price of the machines;was $86,250, freight costs were $3,860, installation costs were $2,810, and;royalty payments for 2012 were $17,690.;Prepare a detailed analysis of the changes in each of the;following balance sheet accounts for 2012. Disregard the related accumulated;depreciation accounts.;Balance;at December 31, 2012;Land;Buildings;Leasehold improvements;Equipment;$;ex 10.1The expenditures and receipts below are related to land;land improvements, and buildings acquired for use in a business enterprises;(a);Money borrowed to pay building contractor (signed a note);$(276,500;(b);Payment for construction from note proceeds;285,000;(c);Cost of land fill and clearing;11,000;(d);Delinquent real estate taxes on property assumed by;purchaser;9,000;(e);Premium on 6-month insurance policy during construction;7,900;(f);Refund of 1-month insurance premium because construction;completed early;(1,600;(g);Architect?s fee on building;27,400;(h);Cost of real estate purchased as a plant site (land $206,500;and building $50,170);256,670;(i);Commission fee paid to real estate agency;8,300;(j);Installation of fences around property;6,000;(k);Cost of razing and removing building;13,400;(l);Proceeds from salvage of demolished building;(5,600;(m);Interest paid during construction on money borrowed for;construction;14,100;(n);Cost of parking lots and driveways;20,500;(o);Cost of trees and shrubbery planted (permanent in nature);14,100;(p);Excavation costs for new building;3,800;Identify each item by letter and list the items in columnar;form, using the headings shown below. (Enter receipt amounts using either a;negative sign preceding the number e.g. -45 or parentheses e.g. (45).);Item;Accounts;Amount;(a);Money borrowed to pay building contractor (signed a note);LandEquipmentOther AccountsLand ImprovementsBuilding;$;(b);Payment for construction from note proceeds;EquipmentBuildingLandLand ImprovementsOther Accounts;(c);Cost of land fill and clearing;LandBuildingLand ImprovementsEquipmentOther Accounts;(d);Delinquent real estate taxes on property assumed by;purchaser;BuildingOther AccountsLand ImprovementsEquipmentLand;(e);Premium on 6-month insurance policy during construction;EquipmentOther AccountsLandLand ImprovementsBuilding;(f);Refund of 1-month insurance premium because construction;completed early;EquipmentOther AccountsLand ImprovementsBuildingLand;(g);Architect?s fee on building;BuildingOther AccountsEquipmentLandLand Improvements;(h);Cost of real estate purchased as a plant site (land $202,900;and building $50,560);LandLand ImprovementsEquipmentOther AccountsBuilding;(i);Commission fee paid to real estate agency;BuildingLandLand ImprovementsEquipmentOther Accounts;(j);Installation of fences around property;Land ImprovementsOther AccountsBuildingEquipmentLand;(k);Cost of razing and removing building;Land ImprovementsOther AccountsLandEquipmentBuilding;(l);Proceeds from salvage of demolished building;BuildingOther AccountsLandEquipmentLand Improvements;(m);Interest paid during construction on money borrowed for;construction;Other AccountsLandLand ImprovementsBuildingEquipment;(n);Cost of parking lots and driveways;EquipmentOther AccountsBuildingLandLand Improvements;(o);Cost of trees and shrubbery planted (permanent in nature);Land ImprovementsOther AccountsLandBuildingEquipment;(p);Excavation costs for new building;EquipmentLandBuildingOther AccountsLand Improvements;Allegro Supply Company, a newly formed corporation, incurred;the following expenditures related to Land, to Buildings, and to Machinery and;Equipment.;Abstract company?s fee for title search;$1,222;Architect?s fees;7,450;Cash paid for land and dilapidated building thereon;216,200;Removal of old building;$47,000;Less: Salvage;12,925;34,075;Interest on short-term loans during construction;17,390;Excavation before construction for basement;44,650;Machinery purchased (subject to 2% cash discount, which was;not taken);152,750;Freight on machinery purchased;3,149;Storage charges on machinery, necessitated by noncompletion;of;building when machinery was delivered;5,123;New building constructed (building construction took 6;months from;date of purchase of land and old building);1,139,750;Assessment by city for drainage project;3,760;Hauling charges for delivery of machinery from storage to;new building;1,457;Installation of machinery;4,700;Trees, shrubs, and other landscaping after completion of;building;(permanent in nature);12,690;Determine the amounts that should be debited to Land, to;Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing;interest during construction exceed the cost of implementation.;Land;Buildings;Machinery and Equipment;Other;Abstract company?s fee for title search;Architect?s fees;Cash paid for land and old building;Removal of old building;Interest on short-term loans during construction;Excavation before construction for basement;Machinery purchased;Freight on machinery purchased;Storage charges on machinery, necessitated by noncompletion;of building when machinery was delivered;New building constructed;Assessment by city for drainage project;Hauling charges for delivery of machinery from storage to;new building;Installation of machinery;Trees, shrubs, and other landscaping after completion of;buildings;Ex 10.8;On December 31, 2011, Hurston Inc. borrowed $7,110,000 at;12% payable annually to finance the construction of a new building. In 2012;the company made the following expenditures related to this building: March 1;$853,200, June 1, $1,422,000, July 1, $3,555,000, December 1, $2,844,000.;Additional information is provided as follows.;1.;Other debt outstanding;10-year, 11% bond, December 31, 2005, interest payable;annually;$9,480,000;6-year, 10% note, dated December 31, 2009, interest payable;annually;$3,792,000;2.;March 1, 2012, expenditure included land costs of $355,500;3.;Interest revenue earned in 2012;$116,130;(a) Determine the amount of interest to be capitalized in;2012 in relation to the construction of the building.;The amount of interest;$;(b) Prepare the journal entry to record the capitalization;of interest and the recognition of interest expense, if any, at December 31;2012. (Credit account titles are automatically indented when amount is entered.;Do not indent manually.);Account Titles and Explanation;Debit;Credit;Problem 10-1;At December 31, 2011, certain accounts included in the;property, plant, and equipment section of Reagan Company?s balance sheet had;the following balances.;Land;$232,370;Buildings;901,150;Leasehold improvements;665,950;Equipment;875,940;During 2012, the following transactions occurred.;1.;Land site number 621 was acquired for $853,480. In addition;to acquire the land Reagan paid a $54,040 commission to a real estate agent.;Costs of $42,970 were incurred to clear the land. During the course of clearing;the land, timber and gravel were recovered and sold for $15,680.;2.;A second tract of land (site number 622) with a building was;acquired for $422,740. The closing statement indicated that the land value was;$301,960 and the building value was $120,780. Shortly after acquisition, the;building was demolished at a cost of $50,000. A new building was constructed;for $333,000 plus the following costs.;Excavation fees;$44,870;Architectural design fees;16,620;Building permit fee;3,410;Imputed interest on funds used during construction (stock;financing);9,320;The building was completed and occupied on September 30;2012.;3.;A third tract of land (site number 623) was acquired for;$652,890 and was put on the market for resale.;4.;During December 2012, costs of $98,050 were incurred to;improve leased office space. The related lease will terminate on December 31;2014, and is not expected to be renewed. (Hint: Leasehold improvements should;be handled in the same manner as land improvements.);5.;A group of new machines was purchased under a royalty;agreement that provides for payment of royalties based on units of production;for the machines. The invoice price of the machines was $86,250, freight costs;were $3,860, installation costs were $2,810, and royalty payments for 2012 were;$17,690.;Prepare a detailed analysis of the changes in each of the;following balance sheet accounts for 2012. Disregard the related accumulated;depreciation accounts.;Balance at December 31, 2012;Land;$;Buildings;$;Leasehold improvements;$;Equipment;$

 

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