Question

Problem 10-5 On January 1, 2020, Sheridan Corporation purchased for $680,000 a tract of land (site number 101) with a building. Sheridan paid a real estate broker’s commission of $48,960, legal fees of $8,160, and title guarantee insurance of $24,480. The closing statement indicated that the land value was $680,000 and the building value was $136,000. Shortly after acquisition, the building was razed at a cost of $73,440. Sheridan entered into a $4,080,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2020, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2021. Additional construction costs were incurred as follows. Plans, specifications, and blueprints $28,560 Architects’ fees for design and supervision 111,520 The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining-balance method. To finance construction costs, Sheridan borrowed $4,080,000 on March 1, 2020. The loan is payable in 10 annual installments of $408,000 starting on March 1, 2021, plus interest at the rate of 10%. Sheridan’s weighted-average amounts of accumulated building construction expenditures were as follows. For the period March 1 to December 31, 2020 $1,768,000 For the period January 1 to September 30, 2021 2,584,000

Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2021.

Answer 1

Fixed assets are those assets where company has no intention of selling within year. Land is fixed asset. The cost of fixed asset includes all outflows of money required to purchase asset and put into use. In this case, it shall even include cost to raze old building as it makes land ready for use in Sheridan corporation’s purpose. Further, the closing statement containing separate building value does not impact value of land was primary asset and it only had building of to be no use.In addition, the price for consideration is paid for land in full.

                                                Sheridan corporation

                                                Cost of land site no. 101

                                                As of September 30,2021

Particulars	Amount ($)
Cost of Land including building value	680,000
Real estate brokers commission	48,960
Legal fees	8,160
Title guarantee insurance	24,480
Cost to raze old building	73,440
Cost of Land	8,35,040

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