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Prepare the Journal Entries for Pepsi Co. Condemnation Award

On April 1, 2007 Pepsi received an condemnation award of $430,000 cash as compensation for the forced sale of the company's land and building, which stood in the path of a new state highway. The land and building cost $60,000 and $280,000, respectively when they were acquired. At April 1, 2007 the accumulated depreciation relating to the building amounted to $160,000. On August 1, 2007, Pepsi purchased a piece of replacement property for cash. The new land cost $90,000 and the new building cost $400,000

Prepare the journal entries to record the transactions on April and August 1, 2007.

Solution Preview

Condemnation award $430,000

Basis in property:
Land $ 60,000
Building 280,000
Less accumulated depreciation (160,000)
Adjusted basis in property $180,000

Gain had there been a sale $250,000

New property purchase price $400,000

Journal Entries:

See Excel attached for entries and further explanations.

Journal Entries: Debit Credit

Accumulated depreciation 160,000
Land 60,000
Building ...

Solution Summary

The solution includes all the journal entries plus extensive notes explaining the law regarding condemnations and the facts in this problem.