Question

During 2016, Chun's Book Store paid $485,000 for land and built a store in Cleveland. Prior to construction, the city of Cleveland charged Chun's $1, 400 for a building permit, which Chun's paid. Chun's also paid $15, 320 for architect's fees. The construction cost of $690,000 was financed by a long-term note payable, with interest cost of $28, 300 paid at completion of the project. The building was completed June 30, 2016. Chun's depreciates the building by the straight-line method over 35 years, with estimated residual value of $337,000. Journalize transactions for the following: a. Purchase of the land b. All the costs chargeable to the building in a single entry c. Depreciation on the building for 2016 Explanations are not required. Report Chun's Book Store's plant assets on the company's balance sheet at December 31, 2016. What will Chun's income statement for the year ended December 31, 2016, report for these facts?

Answer 1

Answer:

Journalize transactions for the following:

a. Purchase of the land

Dr Land 485,000

    Cr Cash 485,000

b. All the costs chargeable to the building in a single entry

Dr Building 735,020

    Cr Cash 735,020

The building accounts includes the $690,000 (construction costs) + $28,300 (capitalized interests) + $1,400 (building permit) + $15,320 (architect's fees).

c. Depreciation on the building for 2016 Explanations are not required.

Dr Depreciation expense 5,686

    Cr Accumulated depreciation 5,686

Only the building is depreciated, land is not. Depreciation expense per year = ($735,020 - $337,000) x 1/35 = $11,372. Since Chun can only depreciate half a year, the depreciation expense will be $5,686.

Report Chun's Book Store's plant assets on the company's balance sheet at December 31, 2016.

Land $485,000

Building $729,334

What will Chun's income statement for the year ended December 31, 2016, report for these facts?

nothing, since interests were capitalized