Question

. Cergo Computers constructed a new training center in 2014, which you have

been hired to manage. A review of the accounting records shows the following
expenditures debited to an asset account called Training Center:
Attorney’s fee, land acquisition $ 34,900
Cost of land 598,000
Architect’s fee, building design 102,000
Building 1,020,000
Parking lot and sidewalk 135,600
Electrical wiring, building 164,000
Landscaping 55,000
Cost of surveying land 9,200
Training equipment, tables, and chairs 136,400
Installation of training equipment 68,000
Cost of grading the land 14,000
Cost of changes in building to soundproof rooms 59,200
Total account balance $2,396,300
During the center’s construction, an employee of Cergo worked full-time
overseeing the project. He spent two months on the purchase and preparation
of the site, six months on the construction, one month on land improvements,
and one month on equipment installation and training-room furniture purchase
and setup. His salary of $64,000 during this ten-month period was charged to
Administrative Expense. The training center was placed in operation on
November 1.
Required
1. Prepare a schedule with the following four column (account) headings:
Land, Land Improvements, Building, and Equipment. Place each of the
above expenditures in the appropriate column. Total the columns.
2. What impact does the classification of the items among several accounts
have on evaluating the profitability performance of the company?

Answer 1

1. The schedule is prepared as follows:

2. The assets capitalized into different classes carry different rates and methods of depreciation. Items capitalized under land will not be depreciated and hence it is capital expenditure not effecting the expenditure.

Step-by-step explanation:

1. Schedule of expenses

Expenses Land Land Building equipment

improvements

Attorney’s fee, land acq 34900

Cost of land 589000

Architect’s fee, building design 102000

Building 1020000

Parking lot and sidewalk 135600

Electrical wiring, building 164000

Landscaping 55000

Cost of surveying land 9,200

Training equipment, tables, and chairs 136,400

Installation of training equipment 68,000

Cost of grading the land 14,000

Cost of changes in building to soundproof rooms 59,200

Employee expenses alloted 12800 6400 38400 6400

TOTAL 636700 220200 1383600 210800

2. Depreciation on land improvements start when the project becomes substantially completed.

Depreciation on building starts when the building construction is substantially completed.

Depreciation on Equipments starts when the equipments begin to be put to use.