Chipper Company had the following transactions during the year:
1. Land was purchased for $75,000 cash. This land was to be used for a new office building. It was agreed that Chipper Company would pay for the razing of a building currently on the land; this would cost $5,600, to be paid in cash.
2. Chipper Company contracted with Cody Construction to build the new office building. It was agreed that Chipper would pay Cody with 3,000 shares of Chipper common stock, a $16,000 note, and $32,000 in cash. Chipper's common stock was currently selling for $30 a share.
3. Chipper purchased some office equipment form Northern Office Equipment for $9,600 cash. Mr. Chipper was a close personal friend of the owner of Northern Office Equipment, and accordingly was sold this equipment at a price lower than normally would be charged. The prices charged to "normal" customers were as follows:
Desks and chairs $8,700
Filing cabinets 1,100
Prepare journal entries for the above transactions.
Notes about the problem:
1. Razing the building is part of the land preparation costs for the new building and is therefore capitalized.
2. With no total contract value for the building, the stock value must be used to establish the cost of the ...
The solution explains the accounting treatment required for each of the three capital transactions. The journal entries are provided in the attached Excel workpaper.