Pear Company (PC) had been renting its office building for several years. On January' 1, 2013 it decided to have a new office building constructed. On that date, it acquired land with an abandoned warehouse on it for $100,000. Other costs included the following.
Demolition of warehouse ………………………………………..$ 20,000
Legal fees for purchase of land ………………………………….2,400
Construction costs of new building …………………………….. 400,000
Proceeds from salvage of warehouse materials ………………....4,000
Installation of wiring and plumbing fixtures …………………… 16,000
Title guarantee insurance for fiscal year 2013 ……………….....2,000
Architectural fees ………………................................................ 24,000
Required:
a. Indicate what balance PC should record in the following accounts for the acquisition: (i) land account, (ii) building account.
b. Assume that the building was completed on December 31, 2013 and was occupied on that date. It has an estimated useful life of 40 years, with residual value of $50,000. Calculate depreciation for 2014 using (i) the straight-line method and (ii) the double declining balance method.
c. Assume that management decided to use straight-line depreciation for the building. By 2017 PC had grown considerably and needed to relocate for more space; it sold the land and building to Sparrow Company on July 1, 2017 for $680,000. Assume depreciation expense has already been recorded for the first six months of the year 0an. 1, 2017 to June 30, 2017). Prepare all journal entries required relating to the land and building accounts on July 1, 2017.