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Purpose: This exercise will give you practice in identifying expenditures to be capitalized.
Hughes Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.
Cash paid for land and dilapidated building thereon
$ 300,000
Removal of old building
$ 60,000
Less salvage
16,500
43,500
Surveying before construction to determine best position for building
1,110
Interest on short-term loans during construction
22,200
Excavation before construction for basement
57,000
Fee for title search charged by abstract company
1,560
Architect's fees
8,400
Machinery purchased (subject to 2% cash discount,
which was not taken)
165,000
Freight on machinery purchased
4,020
Storage charges on machinery, necessitated by noncompletion
of building when machinery was delivered on schedule
6,540
New building constructed (building construction took 8 months
from date of purchase of land and old building)
1,500,000
Assessment by city for sewers (a one-time assessment)
4,800
Transportation charges for delivery of machinery from storage to new building
Installation of machinery
6,000
Trees, shrubs, and other landscaping after completion of building (permanent in nature)
16,200
Instructions
(a) Identify the amounts that should be debited to Land.
(b) Identify the amounts that should be debited to Buildings.
(c) Identify the amounts that should be debited to Machinery and Equipment.
(d) Indicate how the costs above not debited to Land, Buildings, or Machinery and Equipment should be recorded.
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