Chapter 10, Problem 2P

To determine

Journalize entries to record all the preceding events.

Explanation of Solution

Property, Plant, and Equipment:

Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

• To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
• To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains

Prepare journal entries:

Date	Account titles and explanation	Debit ($)	Credit ($)
	Investment in Land $(\$70,000+\$4,000)$	74,000
	Cash		74,000
	(To record the land acquired)
	Land (1)	50,000
	Buildings (2)	150,000
	Common Stock, $3 par		60,000
	Additional Paid-In Capital on Common Stock		140,000
	(To record the buildings land acquired through issuance of common stock)
	Equipment	153,000
	Repair and Maintenance Expense	2,000
	Cash		155,000
	( To record the expenses associated with equipment)
	Land Improvements	30,000
	Cash		30,000
	(To record the instalment of new parking lot)
	Land (5)	60,000
	Buildings (6)	78,000
	Investment in Land		37,000
	Cash		101,000
	( To record the costs associated with land and building)
	Leasehold Improvements	20,000
	Cash		20,000
	(To record the leasehold improvements)
	Equipment $(\$30,000+\$2,000)$	32,000
	Cash		32,000
	( To record the purchase of equipment)
	Royalty Expense	12,000
	Cash		12,000
	( To record the royalty payments)

Table (1)

Working notes:

(1) Calculate the amount of land:

$\begin{array}{c}\text{Land=}\left[\begin{array}{l}\frac{\text{Idependent}\text{appraised}\text{value}\text{of}\text{land}}{\text{Total}\text{independent}\text{appraised}\text{value}\text{of}\text{land}\text{and}\text{factory}}\\ \text{×}\text{Value}\text{of}\text{common}\text{stock}\end{array}\right]\\ \text{=}\frac{\text{\$60,000}}{\text{\$240,0000}}\text{×\$200,000}\text{(3)}\\ \text{=\$50,000}\end{array}$

(2) Calculate the amount of buildings (factory):

$\begin{array}{c}\text{Building}\left(\text{Factory}\right)\text{=}\left[\begin{array}{l}\frac{\text{Idependent}\text{appraised}\text{value}\text{of}\text{land}}{\text{Total}\text{independent}\text{appraised}\text{value}\text{of}\text{land}\text{and}\text{building}}\\ \text{×}\text{Value}\text{of}\text{common}\text{stock}\end{array}\right]\\ \text{=}\frac{\text{\$180,000}}{\text{\$240,0000}}\text{×\$200,000}\text{(3)}\\ \text{=\$150,000}\end{array}$

(3) Calculate the value of common stock:

$\begin{array}{c}\text{Common}\text{stock}\text{=}\left(\begin{array}{l}\text{Number}\text{of}\text{shares}\text{issued}\text{×}\\ \text{Selling}\text{price}\text{of}\text{per}\text{share}\end{array}\right)\\ \text{=20,000}\text{shares}\text{×}\text{\$10}\\ \text{=\$200,000}\end{array}$

(4) Calculate the amount of equipment:

$\begin{array}{c}\text{Equipment}\text{=}\left(\begin{array}{l}\text{Acquisition}\text{cost}\text{+}\text{Sales}\text{tax}\text{+}\\ \text{Freight}\text{costs}\text{+}\text{Installation}\text{costs}\end{array}\right)\\ \text{=\$120,000}\text{+}\text{\$7,000}\text{+}\text{\$10,000}\text{+}\text{\$16,000}\\ \text{=\$153,000}\end{array}$

(5) Calculate the amount of land:

$\begin{array}{c}\text{Land=}\left[\text{Investments}\text{in}\text{land+}\left(\begin{array}{l}\text{Costs}\text{incurred}\text{to}\text{clear}\text{the}\text{land}\\ -\text{Sales}\text{of}\text{recovered}\text{timber}\end{array}\right)\right]\\ \text{=}\left[\text{\$37,000+}\left(\text{\$26,000}-\text{\$3,000}\right)\right]\\ \text{=\$60,000}\end{array}$

Note: $37,000 is the half value of land acquired $(\$74,000÷2)$.

(6) Calculate the amount of buildings:

$\begin{array}{c}\text{Building}\text{=}\text{Built}\text{cost}\text{+}\text{Architects'}\text{fee}\\ \text{=\$60,000}\text{+}\text{\$18,000}\\ \text{=\$78,000}\end{array}$