Reference no: EM132315987

Question

Tracy Ltd owns its building, but it rents its computer equipment and furniture. Tracy Ltd uses historic cost as a measurement base. Assume monthly accounting periods, and ignore GST for this question.

1. Building:

The building was purchased in 2014 and depreciated for six months in the year of purchase.

On the purchase date, $800,000 was borrowed from the bank, at 12% per annum, and the difference was paid in cash. The loan is due in five years. Interest is payable monthly, and the last interest payment, for November, took place on December 1, 2015.

On January 1, 2015, the building had a book value of $1,157,500.

Depreciation is $30,000 per year and has been recorded through November 2015.

2. Computer equipment:

A $150 invoice for the December 2015 rental was not received as of the end of December, so no journal entry was done.

3. Furniture:

In February of 2015, Tracy Ltd paid $3,600 for a 12 month rental of furniture, effective 1 February going forward.

At that time, the entire $3,600 was debited to Prepaid Rent. The Prepaid Rent account has been adjusted monthly through November 2015.

REQUIRED:

1) What was the purchase price of the building?

2) Write down all necessary adjusting journal entries for the end of December 2015.