Question

Cala manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. the negotiated purchase price is $280,000 for the lot plus $110,000 for the old building. the company pays $33,500 to tear down the old building and $47,000 to fill and level the lot. it also pays a total of $1,540,000 in construction costs—this amount consists of $1,452,200 for the new building and $87,800 for lighting and paving a parking area next to the building. prepare a single journal entry to record these costs incurred by cala, all of which are paid in cash.

Answer 1

DEBIT- Land (280,000+110,000+33,500+47,000)
DEBIT- Land Improvements (87,800)
DEBIT- Building (1,452,200)
CREDIT- Cash (Land+ Improvements+ Building)

Answer 2

Given:
280,000 for the land
110,000 for the old bldg
33,500 to tear down old bldg
47,000 to fill and level the land
1,452,000 new bldg
87,800 for lighting and paving a parking area for the new bldg.

Entries: Debit Credit
Land 470,500
Cash 470,500
(280,000 + 110,000 + 33,500 + 47,000 = 470,500)

Building 1,452,000
Cash 1,452,000

Land Improvement 87,800
Cash 87,800

Expenses incurred in preparing the land for its purpose is classified under the land account. Land does not depreciate because its useful life is unidentified.

Land improvement account is used for expenses incurred to add functionality to the land and these output has useful life and is depreciated.