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Joliet Co. Ltd. was incorporated on January' 2, 2012, but was unable to begin manufacturing immediately. The

Question:

Joliet Co. Ltd. was incorporated on January' 2, 2012, but was unable to begin manufacturing immediately. The new factory facilities became available for use on July 1, 2012.
During the start-up period, the company provisionally used a €œLand and Factory Building€ account to record the following transactions, in chronological order:
Joliet Co. Ltd. was incorporated on January' 2, 2012, but

Notes:
i. Legal fees of $3,500 covered the following:
Cost of incorporating the company €¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦ $ 700
Examination of title covering purchase of land €¦€¦€¦€¦€¦€¦ 1,300
Legal work in connection with construction contract €¦€¦€¦€¦ 1,500
ii. Insurance covered the building for a one-year term beginning April 1, 2012.
iii. The special tax assessment covered repaving the street in front of the building.
iv. General expenses covered the following for the period January 2, 2012 to June 30, 2012.
President€™s salary €¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦.. $20,000
Plant superintendent covering supervision of new building €¦€¦€¦€¦ 4,400
v. The board of directors increased the value of the building by $23,500, believing that such an increase was justified to reflect the current market at the time the building was completed; however, there was no external validation of this higher value. Retained earnings were credited for this amount.
vi. Engineers estimate the useful life of the building to be 40 years. The company believes that the declining balance method at a 5% rate is appropriate. The company€™s policy for new PPE is to depreciate the assets according to the time available for use in the fiscal year, rounded to the closest month.
Required:
Prepare entries to reflect correct land, factory building, and accumulated depreciation accounts at December 31, 2012.

Transcribed Image Text:

Jan 3 Purchase of land and building Feb 19 Cost of removing existing building Mar 15 Proceeds on sale of scrap material from demolition Mar 15 Partial payment on new construction Mar IS Legal fees paid (see note ) below) $220,000 9,000 3,000) 50,000 3,500 50,000 2,700 5,500 24,400 70,000 23,500 455,600 18.224) 437,376 Apr: I Second payment on new construction Jun 3 Insurance premium (i) Jun 20 Special tax assessment (ii) Jun 30 General expenses (iv) Jul 3 Final payment on new construction Dec 31 Asset write-up ) Subtotal Dec 31 Less depreciation for 2012 (vi Account balance

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Debit Credit Dr Building 50K 50K 70K 170000 Dr Land initial purchase cost 220000 Dr Land cost of d...View the full answer


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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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