Reference no: EM131577862

Scenario - Riders Corporation manufactures bicycles. To meet the increased demand for its bicycles recently it acquired land and equipment and entered into a contract with a construction company to construct a new factory. Below are the details of expenses Riders incurred in 2016 in acquiring land and equipment and with regard to construction of factory.

Purchase price of the land $ 850,000

Demolition and removal of old building 35,000

Clearing and grading the land before construction 110,000

Various closing costs in connection with acquiring the land 10,000

Architect's fee 12,500

Payments to contractor for building construction 1,850,000

Equipment purchased 575,000

Freight charges on equipment 24,000

Trees, plants and other landscaping 30,000

Installation of a sprinkler system for the landscaping 4,000

Cost to build special platforms and install wiring for the equipment 9,000

Cost of trial runs to ensure proper installation of the Equipment 5,000

Fire and theft insurance on the factory for the first year of use 18,000

Construction of building started on March 2016 and completed on December 2017. Riders Corporation had only one interest bearing long-term debt with a book value of $7,500,000 and an effective interest rate of 6%. Payment of $1,850,000 to contractor is made in several installments as shown below.

March 1, 2016

$400,000

July 31,2016

450,000

September 30, 2016

350,000

November 30, 2016

450,000

December 31, 2016

200,000

Requirements

1. Explain the accounting treatment for each item of expenditure listed above.

2. Determine the initial valuation of each of the assets Riders Corporation acquired in the above transactions.