Answer:
Journal Entries:
Jan. 2:
Debit Land $300,000
Debit Building $450,000
Credit Cash $150,000
Credit Mortgage $600,000
To record the purchase of land and building.
December 31:
Debit Depreciation Expense on Building $18,750
Credit Accumulated Depreciation $18,750
To record the depreciation expense for the year.
July 1:
Debit Depreciation Expense on Building $9,375
Credit Accumulated Depreciation $9,375
To record depreciation expense for six months.
Debit Cash Account $825,000
Credit Sale of Land $330,000
Credit Sale of Building $495,000
To record the sale of the land and building for cash.
Debit Sale of Land $300,000
Debit Sale of Building $450,000
Credit Land $300,000
Credit Building $450,000
To close the accounts to the sale of asset accounts.
Debit Accumulated Depreciation $28,125
Credit Sale of Building $28,125
To close the accumulated depreciation account.
Explanation:
a) Data and Calculations:
Jan. 2
Cost of purchased land with building = $750,000
Value of the land = $300,000
Value of the building = $450,000 ($750,000 - $300,000)
Ratio of land to building = 4:6
Payment made on the purchase = $150,000
Allocation of payment:
Land = $60,000 ($150,000 * 0.4)
Building = $90,000 ($150,000 * 0.6)
Mortgage signed = $600,000
Allocation of Mortgage:
Land = $240,000 ($600,000 * 0.4)
Building = $360,000 ($600,000 * 0.6)
Method of depreciation = straight-line
Salvage value of building = $75,000
Estimated life of building = 20 years
Depreciable amount of building = $375,000 ($450,000 - $75,000)
Depreciation expense per year = $18,750 ($375,000/20)
Depreciation expense for six months = $9,375 ($18,750/12 * 6)
July 1: Sale of building and land = $825,000
Allocation of sale proceeds:
Building = $495,000 ($825,000 * 0.6)
Land = $330,000 ($825,000 * 0.4)
