Purpose: This exercise will give you practice in identifying expenditures to be capitalized.
Hughes Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.
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Cash paid for land and dilapidated building thereon
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$ 300,000
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Removal of old building
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$ 60,000
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Less salvage
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16,500
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43,500
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Surveying before construction to determine best position for building
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1,110
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Interest on short-term loans during construction
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22,200
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Excavation before construction for basement
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57,000
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Fee for title search charged by abstract company
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1,560
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Architect's fees
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8,400
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Machinery purchased (subject to 2% cash discount,
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which was not taken)
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165,000
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Freight on machinery purchased
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4,020
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Storage charges on machinery, necessitated by noncompletion
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of building when machinery was delivered on schedule
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6,540
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New building constructed (building construction took 8 months
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from date of purchase of land and old building)
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1,500,000
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Assessment by city for sewers (a one-time assessment)
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4,800
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Transportation charges for delivery of machinery from storage to new building
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1,860 |
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Installation of machinery
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6,000
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Trees, shrubs, and other landscaping after completion of building (permanent in nature)
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16,200
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Instructions
(a) Identify the amounts that should be debited to Land.
(b) Identify the amounts that should be debited to Buildings.
(c) Identify the amounts that should be debited to Machinery and Equipment.
(d) Indicate how the costs above not debited to Land, Buildings, or Machinery and Equipment should be recorded.