1.
Prepare a table to allocate the costs incurred by Company P.
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Lump-Sum purchase:
If a company purchases a group of assets collectively and a lump sum amount is paid for such purchase, then it is referred to as basket purchase. The accounting term for this type of acquisition is the lump-sum purchase.
Compute the total cost of the assets as follows:
Table (1)
Note: Refer table-2 for the purchase price of each asset.
Working note:
Prepare a table to allocate the costs incurred by Company P as follows:
Assets | Fair Market Value (in $) | Percent of total= | Allocation of the purchase price based on the percentage of total |
Land | 795,200 | 868,000 | |
Building B | 482,800 | 527,000 | |
Land Improvements B | 142,000 | 155,000 | |
Total | $1,420,000 | $1,550,000 |
…… (1)
2.
Prepare a single
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare a single journal entry to record all the incurred costs as follows:
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
January 1 | Land | 1,164,500 | |
Land improvements B | 155,000 | ||
Land Improvements C | 103,500 | ||
Building B | 527,000 | ||
Building C | 1,458,000 | ||
Cash | 3,408,000 | ||
(To record the costs of lump-sum purchase) |
Table (2)
- Land is an asset account and it is increased. Therefore, debit land account.
- Land Improvements are the asset account and they are increased. Therefore, debit land improvements account.
- Building is an asset account and it is increased. Therefore debit building account.
- Cash is an asset account and it is decreased. Therefore credit cash account.
3.
Prepare the December 31
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare the December 31 adjusting entries to record depreciation of the assets for the first year as follows:
Building B:
Date | Account title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Depreciation expense (2) | 28,500 | ||
| 28,500 | |||
(To record the depreciation expense) |
Table (3)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $28,500.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $28,500.
Working Note:
Calculate the depreciation expense.
Building C:
Date | Account title and Explanation | Post Ref. |
Debit ( $) |
Credit ($) |
December 31 | Depreciation expense (3) | 60,000 | ||
Accumulated depreciation | 60,000 | |||
(To record the depreciation expense) |
Table (4)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $60,000.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $60,000.
Working Note:
Calculate the depreciation expense.
Land Improvements B:
Date | Account title and Explanation | Post Ref. |
Debit ( $) |
Credit ($) |
December 31 | Depreciation expense (4) | 31,000 | ||
Accumulated depreciation | 31,000 | |||
(To record the depreciation expense) |
Table (5)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $31,000.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $31,000.
Working Note:
Calculate the depreciation expense.
Land Improvements C:
Date | Account title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31 | Depreciation expense (5) | 10,350 | ||
Accumulated depreciation | 10,350 | |||
(To record the depreciation expense) |
Table (6)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $10,350.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $10,350.
Working Note:
Calculate the depreciation expense.
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Chapter 10 Solutions
Principles of Financial Accounting.
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