On January 1, 2018, the Blackstone Corporation purchased a tract of land (site number 11) with a building for$600,000. Additionally, Blackstone paid a real estate broker’s commission of $36,000, legal fees of $6,000, andtitle insurance of $18,000. The closing statement indicated that the land value was $500,000 and the buildingvalue was $100,000. Shortly after acquisition, the building was razed at a cost of $75,000.Blackstone entered into a $3,000,000 fixed-price contract with Barnett Builders, Inc., on March 1, 2018, forthe construction of an office building on land site 11. The building was completed and occupied on September30, 2019. Additional construction costs were incurred as follows:Plans, specifications, and blueprints $12,000Architects’ fees for design and supervision 95,000To finance the construction cost, Blackstone borrowed $3,000,000 on March 1, 2018. The loan is payable in 10annual installments of $300,000 plus interest at the rate of 14%. Blackstone’s average amounts of accumulatedbuilding construction expenditures were as follows:For the period March 1 to December 31, 2018 $ 900,000For the period January 1 to September 30, 2019 2,300,000Required:1. Prepare a schedule that discloses the individual costs making up the balance in the land account in respect ofland site 11 as of September 30, 2019.2. Prepare a schedule that discloses the individual costs that should be capitalized in the office building accountas of September 30, 2019.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2018, the Blackstone Corporation purchased a tract of land (site number 11) with a building for
$600,000. Additionally, Blackstone paid a real estate broker’s commission of $36,000, legal fees of $6,000, and
title insurance of $18,000. The closing statement indicated that the land value was $500,000 and the building
value was $100,000. Shortly after acquisition, the building was razed at a cost of $75,000.
Blackstone entered into a $3,000,000 fixed-price contract with Barnett Builders, Inc., on March 1, 2018, for
the construction of an office building on land site 11. The building was completed and occupied on September
30, 2019. Additional construction costs were incurred as follows:
Plans, specifications, and blueprints $12,000
Architects’ fees for design and supervision 95,000
To finance the construction cost, Blackstone borrowed $3,000,000 on March 1, 2018. The loan is payable in 10
annual installments of $300,000 plus interest at the rate of 14%. Blackstone’s average amounts of accumulated
building construction expenditures were as follows:
For the period March 1 to December 31, 2018 $ 900,000
For the period January 1 to September 30, 2019 2,300,000
Required:
1. Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of
land site 11 as of September 30, 2019.
2. Prepare a schedule that discloses the individual costs that should be capitalized in the office building account
as of September 30, 2019.
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