Question

Cala Manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. The negotiated purchase price is $254,000 for the lot plus $149,000 for the old building. The company pays $37,000 to tear down the old building and $54,696 to fill and level the lot. It also pays a total of $1,789,449 in construction costs—this amount consists of $1,683,200 for the new building and $106,249 for lighting and paving a parking area next to the building. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash

Answer 1

JOURNAL ENTRY

ACCOUNT TITLE

DEBIT

CREDIT

Land

$403,000

(254000+149000)

Land

$91,696

(37000+54696)

91696

Building

$1,683,200

Land Improvement

$106,249

Cash

$2,284,145

Demolition of old buildings— filling and levelling—are considered land costs because these costs are necessary to get the land in condition for its intended purpose.

Land Improvement Costs are capitalized and depreciated over the years