JENICE JOY S. SUMAWAYBM 220 - PROF. TRINIDAD
Chapter 7: Long-Lived Nonmonetary Assets and Their Ammortization
Case: Joan HoltzReference: Accounting Text and Cases (9th Ed)
Joan Holtz said to the accounting instructor. "The general principle for arriving at the amountof a fixed asset that is to be capitalized is reasonably clear, but there certainly are a great manyproblems in applying this principle to specific situations."additional wing on its existing factory building. What would be the proper accounting treatment of the followingitems (items a-i)?
Solution: Note --- amount shown is not given in the question
Architects' fee1,200$Snow removal cost1,300$Removal of old building20,000$Interest payable on construction2,500$Local real estate taxes2,000$Cost of mistakes during construction3,000$Accumulated overhead cost25,000$Insurance on building construction6,500$Other cost of damages or loses during construction3,500$ 65,000$Less: Cash discounts2,000$
2) Assume that the Archer Company bought a large piece of land, including the buildings thereon,with the intent of razing the buildings and constructing a combined hotel and office building in theirplace. The existing buildings consisted of a theater and several stores and small apartment buildings,all in active use at the time of the purchase.
a) What accounting treatment should be accorded that portionof the purchase price considered to be amount paid for the buildings that are subsequently razed?
Land and Building
Cash paid for land and building3,000,000$
b) How should the costs of demolishing the old buildings be treated?
Removal of old building250,000$
1. Suppose that the Bruce Manufacturing Company used its own maintenance crew to build an additional
LONG-LIVED NONMONETARY ASSET AND THEIR AMMORTIZATION