Classification of Costs Associated with Assets
Response to the following problem:
The following account balances were included in the balance sheet of the Bromley Company on December 31, 2009:
Land $100,000
Land improvements 20,000
Buildings 300,000
Machinery and equipment 500,000
During 2010, the following transactions occurred:
1. Land was acquired for $70,000 for a future building site. Commissions of $4,000 were paid to a real estate agent.
2. A factory and land were acquired from the Kent Development Company by issuing 20,000 shares of $3 par common stock. At that time, the stock was selling for $10 per share on the New York Stock Exchange. The independently appraised values of the land and the factory were $60,000 and $180,000, respectively.
3. Machinery and equipment was acquired at a cost of $120,000. In addition, sales tax, freight costs, and installation costs were $7,000, $10,000, and $16,000, respectively. During installation, the machinery was damaged and $2,000 was spent for repairs.
4. A new parking lot was installed at a cost of $30,000.
5. A machine that had cost $20,000 on January 1, 2006 and had a book value on December 31, 2010 of $4,000 was sold on that date for $6,000.
6. Half the land purchased in item 1 was prepared as a building site. Costs of $26,000 were incurred to clear the land, and the timber recovered was sold for $3,000. A new building was built for $60,000 plus architect's fees and imputed interest on equity funds used during construction of $18,000 and $15,000, respectively. No debt is outstanding
7. Costs of $20,000 were incurred to improve some leased office space. The lease will terminate in 2012 and is not expected to be renewed.
8. A group of new machines was purchased under a royalty agreement that provides for payment of annual royalties based on units produced. The invoice price of the machines was $30,000, freight costs were $2,000, and royalty payments for 2010 were $12,000.
Required:
Prepare journal entries to record all the preceding events. Unless otherwise indicated, assume the company makes all payments in cash.