Question
On January 1, 2021, ADP Corporation purchased a tract of land with a building by writing a $896,000 non-interest bearing one year note payable due
On January 1, 2021, ADP Corporation purchased a tract of land with a building by writing a $896,000 non-interest bearing one year note payable due on December 31, 2021. Assume similar loans bear an 12% interest. (For one year, FV of $1 at 12% = 1.12)
Additionally, ADP paid legal fees of $60,000, and title insurance of $40,000. The closing statement indicated that the land value was $600,000 and the building value was $200,000.
Required:
(8 points) Please record the following journal entries for ADP:
The purchase of the land and the building.
The payment of the note at the end of the year.
(6 points) Assume ADP depreciates the building using double declining balance method and the estimated useful life is 10 years, no salvage value. Please record the depreciation for the building for Year 2021.
(12 points) In 2023, after the 2022 financial statements were issued, ADP decided to switch to the straight-line depreciation method for the building. At that time, the companys controller discovered that at the time of the purchase, they also paid 100,000 cash for the real estate brokers commission. This amount has been incorrectly expensed. Prepare the appropriate correcting entry for this mistake.
(4 points) Record the depreciation for the building for 2023.
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