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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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ANALYSIS OF MULTIPLE-CHOICE TYPE QUESTIONS

  1. (L.O. 1) The Jupiter Company purchased a parcel of land to be used as the site of a new office complex. The following data pertain to the purchase of the land and the beginning of construction for the new building:
    Purchase price of land $200,000
    Attorney's fees for land transaction 1,000
    Title insurance cost 2,000
    Survey fees to determine the boundaries of the lot 800
    Excavation costs for the building's foundation 8,000
    Costs of clearing and grading the land 1,400

    The total acquisition cost of the land is:

    1. $213,200.
    2. $205,200.
    3. $203,800.
    4. $202,400.
    5. $200,000.

    Approach and Explanation: Think about how the cost of land is determined: an asset's cost includes all costs necessary to acquire the asset and get it to the location and condition for its intended purpose. When land has been purchased for the purpose of constructing a building, all costs incurred up to the excavation for the new building are considered land costs. Think of the common components of land cost (refer to the listing in Illustration 9-1). The cost is computed as follows:

    images

    The $8,000 excavation costs for the building's foundation should be charged (debited) to the Building account. (Solution = b.)

  2. (L.O. 1) The Venus Company hired an architect to design plans and a construction firm to build a new office building on a parcel of land it owns. The following ...

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