ACCT105 Quiz 02 – SOLUTION

Nos. 1 and 2

Land Old building New building

Lump-sum price 2,000,000 4,000,000 -
(6M x 2.5M/7.5M); (6M x 5M/7.5M)
Cost of razing the old building - - 30,000
(demolition cost)
Proceeds from sale of salvaged - - (7,500)
materials
Legal fees in conveying title to land 10,000 - -
Option paid for the land and old 1,000 2,000
bldg. acquired (3K x 2.5/7.5); (3K x 2.5/7.5)
Payments to tenants to vacate 2,000 4,000
premises (6K x 2.5/7.5); (6K x 5/7.5)
Materials, labor and overhead - - 4,250,000
Totals 2,013,000 4,006,000 4,272,500

Journal entries:
Lump sum purchase price
Date Land 2,000,000
Building - old 4,000,000
Cash 6,000,000
to record the purchase on a lump sum price

Demolition costs
Date Building – new 30,000
Cash 30,000
to record the demolition costs as cost of the new building

Salvaged materials
Date Cash 7,500
Building - new 7,500
to record the proceeds from sale of salvaged materials resulting from the
demolition as reduction in the cost of the new building

Additional costs: Title, option and payments to tenants.

Date Land (10K + 1K + 2K) 13,000
Building – old (2K + 4K) 6,000
Cash 19,000
to record the additional costs of legal fees in conveying title to land, option,
and payments to tenants to vacate premises

Construction costs
Date Building – new 4,250,000
Cash 4,250,000
to record the construction costs of the new building
Allocated cost of old building demolished
Date Loss on derecognition of asset 4,006,000
Building - old 4,006,000
to record the allocated cost of the demolished building as loss

Option not exercised

Date Loss on Call Option 4,000
Call Option 4,000
to record the allocated cost of the demolished building as loss

Nos. 3 and 4
Land Old building New building
Lump-sum price 6,000,000 - -
Cost of razing the old building - - 30,000
(demolition cost)
Proceeds from sale of salvaged - - (7,500)
materials
Legal fees in conveying title to land 10,000 - -
Option paid for the land and old 3,000 -
bldg. acquired
Payments to tenants to vacate 6,000 -
premises (6K x 2.5/7.5); (6K x 5/7.5)
Materials, labor and overhead - - 4,250,000
Totals 6,019,000 - 4,272,500

Journal Entries:
Lump sum purchase price
Date Land 6,000,000
Cash 6,000,000
to record the purchase on a lump sum price

Demolition costs
Date Building – new 30,000
Cash 30,000
to record the demolition costs as cost of the new building

Salvaged materials
Date Cash 7,500
Building - new 7,500
to record the proceeds from sale of salvaged materials resulting from the
demolition as reduction in the cost of the new building

Additional costs: Title, option and payments to tenants.

Date Land 19,000
Cash 19,000
to record the additional costs of legal fees in conveying title to land, option,
and payments to tenants to vacate premises
Construction costs
Date Building – new 4,250,000
Cash 4,250,000
to record the construction costs of the new building

Option not exercised

Date Loss on Call Option 4,000
Call Option 4,000
to record the allocated cost of the demolished building as loss

ACCT105 Quiz 03 – SOLUTION

Purchase price (cash price equivalent) 100,000

Broker’s commission 5,000
Import duties 25,000
Non-refundable purchase taxes 10,000
Transportation cost 1,000
Assembling and installation costs 2,000
Testing costs 1,500
Proceeds from samples generated (500)
Initial cost of equipment 144,000
Requirement (b):
Date Factory equipment 144,500
Cash 144,500
to record capitalizable costs of equipment
Date Cash 500
Factory equipment 500
to record sale of samples generated from testing
Date General and administrative costs 4,200
Advertising expense 3,800
Cash 8,000
to record non-capitalizable costs