Acquisition of An Asset:
Parker Piano Company purchases a tract of land and an existing building for $1,000,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, Parker pays closing costs, including title insurance of $3,000. The company also pays $14,000 in property taxes, which includes $9,000 of back taxes (unpaid taxes from previous years) paid by Parker on behalf of the seller and $5,000 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $50,000 to tear down the old building and remove it from the site. Parker is able to sell salvaged materials from the old building for $5,000 and pays an additional $11,000 to level the land.
Determine the cost of the land.
Depreciation and Disposal
The Parker Piano Company purchased a Delivery Truck on January 1, 2025 for $50,000 which included all costs to get the asset ready for use. The truck has an anticipated life of 100,000 miles or 4 years. The estimated residual value at the end of the assets service life is expected to be $2,000. For assets of this type, the company utilizes the straight-line depreciation method.
|
Date |
Account Name |
Debit |
Credit |
Complete the depreciation table below.
|
Period Ended |
Depreciation Expense |
Accumulated Depreciation |
End of Period Book Value |
|
December 31, 2025 |
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|
December 31, 2026 |
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|
December 31, 2027 |
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|
December 31, 2028 |
1.
Cost of land:
| Purchase cost | $1,000,000 |
| Add: Closing costs | 3,000 |
| Add: Back taxes | 9,000 |
| Add: Cost of tearing the building | 50,000 |
| Add: Cost of leveling tjhe land | 11,000 |
| Less: Salvage value of materials | 5,000 |
| Total cost of land | $1,068,000 |
2.
| Date | Account Name | Debit | Credit |
| January.1,2025 | Truck | $50,000 | |
| Cash | $50,000 |
Depreciation expense = $50,000-2,000 / 4 = $12,000
| Period ended | Depreciation expense | Accumulated depreciation | End of period book value |
| December 31, 2025 | $12,000 | $12,000 | $38,000 |
| December 31, 2026 | 12,000 | 24,000 | 26,000 |
| December 31, 2027 | 12,000 | 36,000 | 14,000 |
| December 31, 2028 | 12,000 | 48,000 | 2,000 |
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