At December 31, 2011, certain accounts included in
the property, plant, and equipment section of Reagan Company’s balance sheet
had the following balances.
P10-1 (Classification of
Acquisition and Other Asset Costs) 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
|
$230,000
|
|
Buildings
|
$890,000
|
|
Leasehold improvements
|
$660,000
|
|
Equipment
|
$875,000
|
During 2014 the following transactions occurred:
1. Land site number 621 was acquired for $850,000 In
addition, to acquire the land Reagan paid a $51,000 commission to a real estate
agent. Costs of $35,000 were incurred to clear the land. During the course of
clearing the land, timber and gravel were recovered and sold for $13,000
2. A second tract of land (site number 622) with a
building was acquired for $420,000 The closing statement indicated that the
land value was $300,000 and the building value was $120,000 Shortly after
acquisition, the building was demolished at a cost of $41,000 A new building
was constructed for $330,000 plus the following costs:
|
Excavation fees
|
$38,000
|
|
Architectural design
fees
|
$11,000
|
|
Building permit fees
|
$2,500
|
|
Imputed interest on
funds used during construction (Stock financing)
|
$8,500
|
The building was completed and occupied on
September 30, 2014.
3. A third tract of land (site number 623) was
acquired for $650,000 and was put on the market for resale.
4. During December 2014, costs of $89,000 were
incurred to improve leased office space. The related lease will terminate on
December 31, 2016, 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 $87,000 freight
costs were $3,300 installation costs were $2,400 and royalty payments for 2014
were $17,500
Instructions
(a)
Prepare a detailed analysis of the changes in each of the following balance
sheet accounts for 2014:
|
Land
|
Leasehold Improvements
|
|
Buildings
|
Equipment
|
Disregard the related accumulated depreciation
accounts.
(b) List
the items in the situation that were not used to determine the answer to (a)
above, and indicate where, or if, these items should be
included in Reagan's financial statements.
TUTORIAL
PREVIEW
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REAGAN
COMPANY
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Analysis
of Land Account for 2014
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Balance, January 1,
2014
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$230,000
|
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Land site number 621
|
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|
Acquisition cost
|
$850,000
|
||
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Commission to real
estate agent
|
51,000
|
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