1943125&infoId=349583

Classification of Costs

The following account balances were included in the balance sheet of

the Bromley Company on December 31, 2009:

Land ………………………………………………
Land improvements ………………………
Buildings …………………………………………
Machinery and equipment …………………

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 Appraised value=
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 Land 60000,
Factory = 180000
Exchange. The independently appraised values of the land and the ,Ratio 1:3
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 in 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. 

Bromley Company
year 2010 Journal Entry to record
Debit
$
1 Land 74000
Cash
To record the acquisition of land $70000 ,Brokerage commission paid $4000

2 Land 50000
Factory 150000
Common stock
Additional Paid in capital
To record factory and Land acquired from Kent development
company by issuing 20000 ,$3 par common shares at market price
$10 per share.

3 Machinery and equipment … 153000

Loss on repair of machine 2000
cash
To record the purchase,ST,Freight and installation cost of New
machine.Repair cost $2000 booked as loss

4 Land Improvement 30000

cash
To record the cost incurred to install parking Lot
5 cash 6000
Accumulated Depreciation 16000
Equipment
Gain on sale
To record the sale of equipment With initial cost
$20000,Accumulated Depreciation,$16000 for sale price $6000

6 Land 23000
Buildings ………………………………………… 93000
Cash
To record the half land preparation and Buildings constructed on the half of Land

7 Leasehold Improvements 20000

cash

Leasehold amortization 6666.7

Leasehold Improvements
to record the improvement in leased office space and to be
amortized in 3 years till year 2012.Amortization expense for year
2010 recognized.

8 Machinery and equipment ………………… 32000

Royalty Expenses 12000
cash
To record the purchase,ST,Freight of New machine.Royalty expenses
for year 2010, $12000 booked as expenses
 $
100000
20000
300000
500000

valued at effect on assets

$74000 Land= 70000 + commissions
$4000 =$74000

1.value bought at =20000 x

10=$200000, by apportioning the value of
2.Common stock $20000 x
$ 3= $60000 $200000 in ratio 1:3,
Land= 50000
3.Additional Paid in capital Factory =$150000
=($200000-
60000=$140000)

Cost of acquisition=120000 Machinery asset value

sales tax= 7000
freight 10000 =153000 (repair cost $ 2000
can not be capitalized .To be
Installation cost 16000
total 153000 booked in Loss)

Land Improvement=$30000

equipment =0,
Gain on sale=$6000- Accumulated
4000=$2000 Depreciation=$20000-
4000=16000

Building cost Land value=

Construction cost 60000 land Clearing cost 26000
architect fees 18000 less Timber Revenue
Interest on equity 15000 3000 Net land cost
Total cost 93000 23000
 Leasehold
Improvements=20000 lease
amortization expense
=20000/3=$6666.67

Invoice costs= 30000 annual royalties based on

freight 2000 units produced are not
capitalized and expended
total 32000 each year

J8

Credit
$

74000

60000
140000

155000

30000
 20000
2000

116000

20000

6666.67

44000