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Chapter 9: Q1SE (page 526)

Determining the cost of an asset

Highland Clothing purchased land, paying \(96,000 cash and signing a \)300,000 note payable. In addition, Highland paid delinquent property tax of \(1,100, title insurance costing \)600, and $4,600 to level the land and remove an unwanted building. Record the journal entry for purchase of the land.

Short Answer

Expert verified

The business entity will pay total cash of$102,300.

Step by step solution

01

Definition of Note Payable

Note payable is defined as the document reflecting the promise made by the borrower to the lender for repayment. It reflects the maturity date and the terms of payment.

02

Journal entry for purchase of land

Date

Accounts and Explanation

Debit ($)

Credit ($)

Building

402,300

Cash

102,300

Note payable

300,000

(To record the purchase of building)

Working note: Calculation of cash payment

Particular

Amount ($)

Cash for building

$96,000

Delinquent property tax

1,100

Title insurance

600

Remove unwanted building

4,600

Total cash paid

$102,300

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Most popular questions from this chapter

A Recording lump-sum asset purchases, depreciation, and disposals Ellie Johnson Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each depreciable asset. During 2018, Ellie Johnson Associates completed the following transactions:

Jan. 1 Purchased office equipment, \(113,000. Paid \)80,000 cash and financed the remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(310,000 paid in cash. An independent appraisal valued the land at \)244,125 and the communication equipment at \(81,375.

Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000 through December 31 of the preceding year). Ellie Johnson Associates received \)420,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of \(25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value.

Office equipment is depreciated using the double-declining-balance method over five years with a \)1,000 residual value.

Record the transactions in the journal of Ellie Johnson Associate

Question: On January 1, Orange Manufacturing paid $40,000 for a patent. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only eight years. Assuming the straight-line method of amortization, record the journal entry for amortization for Year 1.

Maxim Company reported beginning and ending total assets of \(140,000 and \)160,000, respectively. Its net sales revenue for the year was $240,000. What was Maxim’s asset turnover ratio?

Alpha Communication purchased equipment on January 1, 2018, for \(27,500. Suppose Alpha Communication sold the equipment for \)20,000 on December 31, 2020. Accumulated Depreciation as of December 31, 2020, was $10,000. Journalize the sale of the equipment, assuming straight-line depreciation was used.

How is discarding of a plant asset different from selling a plant asset?
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