Chapter 10, Problem 5E

To determine

Capitalization of costs of asset: While determining the cost of land building and machinery, not only is the cost of purchase or acquisition taken into consideration, but also all expenses incurred to make the asset fit for use is capitalized. Purchase price need not be paid in cash; an asset can be acquired in exchange of shares, another asset, or by signing notes payable. Cost of land not only includes purchase price but also any expenditure incurred to make the land ready for use. This includes any legal fees paid; cost incurred for grading, filling, or draining the land; any expenses related to mortgage and encumbrances; and improvement made to land to make the land suitable for use. Cost of building includes cost of construction, any interests paid on amounts due, cost of drawings, and any liability insurances paid. In addition to these, any costs incurred directly or indirectly toward the construction of the building is capitalized. Cost of Machinery includes cost of drawings, installation costs, any wages paid for installation and testing, freight paid, and all such costs which are incurred to make the asset fit for use.

To determine the amount to be debited for the given accounts with an assumption of capitalized interest.