On July 1, 2021, Company A purchased land and buildings and agreed to rent the facility to a non-affiliated company on a month-by- month basis. Pertinent details follow: i. The company paid 6.0million fortheinvestmentpropertyplus200,000 in related legal fees. The purchase price was allocated 80% to the building and 20% to the land. ii. The estimated useful life of the building is 30 years at which time the salvage value is expected to be $0. iii. The company uses the straight-line method to depreciate all depreciable assets. iv. An appraisal valued the investment property at $6.4 million as at December 31, 2021, year-end-5.1millionbuildingand1.3 million land. Required (1) Prepare the journal entry to record the purchase of the property. (2) Prepare the year-end adjusting entries for 2021 assuming that the company elects to use the cost model to account for investment property. (3) Prepare the year-end adjusting entries for 2021 assuming that the company elects to use the fair value model to account for investment property.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On July 1, 2021, Company A purchased land and buildings and agreed to rent the facility to a non-affiliated company on a month-by-
month basis. Pertinent details follow:
i. The company paid 6.0million fortheinvestmentpropertyplus200,000 in related legal fees. The purchase price was
allocated 80% to the building and 20% to the land.
ii. The estimated useful life of the building is 30 years at which time the salvage value is expected to be $0.
iii. The company uses the straight-line method to depreciate all depreciable assets.
iv. An appraisal valued the investment property at $6.4 million as at December 31, 2021, year-end-5.1millionbuildingand1.3
million land.
Required
(1) Prepare the journal entry to record the purchase of the property.
(2) Prepare the year-end adjusting entries for 2021 assuming that the company elects to use the cost model to account for
investment property.
(3) Prepare the year-end adjusting entries for 2021 assuming that the company elects to use the fair value model to account for
investment property.
Transcribed Image Text:On July 1, 2021, Company A purchased land and buildings and agreed to rent the facility to a non-affiliated company on a month-by- month basis. Pertinent details follow: i. The company paid 6.0million fortheinvestmentpropertyplus200,000 in related legal fees. The purchase price was allocated 80% to the building and 20% to the land. ii. The estimated useful life of the building is 30 years at which time the salvage value is expected to be $0. iii. The company uses the straight-line method to depreciate all depreciable assets. iv. An appraisal valued the investment property at $6.4 million as at December 31, 2021, year-end-5.1millionbuildingand1.3 million land. Required (1) Prepare the journal entry to record the purchase of the property. (2) Prepare the year-end adjusting entries for 2021 assuming that the company elects to use the cost model to account for investment property. (3) Prepare the year-end adjusting entries for 2021 assuming that the company elects to use the fair value model to account for investment property.
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