1). In 2012, Magnificent Corp. bought a tract of land for $1,800,000 cash. The company plans to construct a new building on the land in the near future. Magnificent Corp. demolished an old warehouse on the land and incurred additional costs as follows (all paid in cash):
Demolition of the old building $500,000
Title and legal fees 25,000
Grading and filling costs 80,000
Improvements to the sewer system 120,000
Required: Prepare the journal entry to record the purchase of land in Magnificent's records.Show your calculations.
(2). In 2013, Magnificent Corp. purchased a mining site in southern Alberta for $300,000 cash. The company expects that the mining site can be used for 10 years and will require restoration at the end of the 10-year period of use.The estimated restoration costs will be $50,000 and will be incurred at the end of the 10th year.
Required: Prepare the journal entry to record the purchase of the mining site in Magnificent's records. Show your calculations.
(3). On Jan 1st, 2014, Magnificent Corp. purchased a piece of equipment by issuing a 2-year, 3% Notes Payable. Magnificent has to pay interest every December 31st, but the $80,000 principal is due only after two years. The market interest rates are 5%.The CEO of Magnificent expects the equipment will be used for 10 years, and will have a salvage value of $2,000 at the end of the 10th year
a. Prepare necessary journal entries in 2014 to record purchase of the equipment and the year-end interest payments (round to the closest dollar)
b. Calculate the depreciation expense of the equipment in 2014, assuming the company uses straight-line method. Prepare necessary journal entries to record the depreciation
c. Calculate the depreciation expense of the equipment in 2014 and 2015,assuming the company uses the declining balance method (with a depreciation rate of 20% per year). Prepare necessary journal entries to record the depreciation in 2014 and 2015.