Question

Cala Manufacturing purchases land for $451,000 as part of its plans to build a new plant. The company pays $31,900 to tear down an old building on the lot and $47,156 to fill and level the lot. It also pays construction costs $1,349,900 for the new building and $85,210 for lighting and paving a parking area. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.

Answer 1

Answer:

                                                                        Debit            Credit    

Property plant and equipment (Plant)   $1,965,166

               Cash                                                                  $1,965,166

Being the cost of construction of plant building

Explanation:

According to International Accounting Standards (IAS) 16, property plants and equipment, the cost of land includes all of the cost necessary to bring and make it ready for the intended use.

The total cost of the plant = 451,000 + 31,900 + 47,156 + 1,349,900 + 85210

= $1,965,166

The journal entry

                                                                        Debit          Credit    

Property plant and equipment (Plant)   $1,965,166

               Cash                                                                   $1,965,166

Being the cost of construction of plant building