During Year 4, a firm purchased land, building, and equipment for a lump sum payment of $450,000. In connection with this acquisition, the firm also incurred legal fees of $5,000, accounting fees of $5,000, real estate transfer taxes on the building of $10,000, building inspection fee of $2,000, and appraisal costs of $10,000. The appraisal established the value of the land at $100,000, the value of the building at $300,000, and the value of the equipment at $100,000. All the costs have been accumulated in a temporary account titled "Site Acquisition Costs."
Prepare the journal entry to record the acquisition of the property and the related fees.© BrainMass Inc. brainmass.com October 25, 2018, 12:26 am ad1c9bdddf
The lumpsum cost would be the cash paid plus legal fee, accounting fee and appraisal cost.
The lump sum costs will be 450,000+5,000+5,000+10,000= 470,000.
The building costs would be added to building (real estate transfer fee on ...
The solution explains the journal entry for acquisition of the property and the related fees
Acquisition Costs of Realty - The following expenditures and receipts are related to land, land improvements,
E10-1 (Acquisition Costs of Realty) the following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses.
(a) Money borrowed to pay building contractor (signed a note) $(275,000)
(b) Payment for construction from note proceeds 275,000
(c) Cost of land fill and clearing 8,000
(d) Delinquent real estate taxes on property assumed by purchaser 7,000
(e) Premium on 6-month insurance policy during construction 6,000
(f) Refund of 1-month insurance premium because construction completed early (1,000)
(g) Architect’s fee on building 22,000
(h) Cost of real estate purchased as a plant site (land $200,000 and building $50,000) 250,000
(i) Commission fee paid to real estate agency 9,000
(j) Installation of fences around property 4,000
(k) Cost of razing and removing building 11,000
(l) Proceeds from salvage of demolished building (5,000)
(m) Interest paid during construction on money borrowed for construction 13,000
(n) Cost of parking lots and driveways 19,000
(o) Cost of trees and shrubbery planted (permanent in nature) 14,000
(p) Excavation costs for new building 3,000
Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should be reported in parentheses. For any amounts entered in the Other Accounts column also indicate the account title.
Other Item Land Improvements Building Accounts