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During the year, Sloan Inc. began a project to construct new corporate headquarters. Sloan purchased land...

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Accounting

During the year, Sloan Inc. began a project to construct newcorporate headquarters. Sloan purchased land with an existingbuilding for $750,000. The land was valued at $700,000 and thebuilding at $50,000. Sloan planned to demolish the building andconstruct a new office building on the site.

1.

Classify as land and do not depreciate.

2.

Classify as building and depreciate.

3.

Expense.

4.

Capitalized

5.

Expensed as a period cost

Purchase of land for $700,000

Interest of $147,000 on construction financing incurred aftercompletion of construction

Interest of $186,000 on construction financing paid duringconstruction

Purchase of building for $50,000

$18,500 payment of delinquent real estate taxes assumed by Sloanon purchase

$12,000 liability insurance premium during the constructionperiod

$65,000 cost of razing existing building

Moving costs of $136,000

Freight-in charges paid for goods held for resale

In-transit insurance on goods held for resale purchased F.O.B.shipping point

Interest on note payable for goods held for resale

Installation of equipment

Testing of newly purchased equipment

Cost of current year service contract on equipment

Answer & Explanation Solved by verified expert
4.2 Ratings (598 Votes)
Classification and explanation provided as under Transaction Classification Explanation Purchase of land for 700000 Classify as land and do not depreciate Amount paid to be capitalized as cost of land Interest of 147000 on construction financing incurred after completion of construction Expense Interest incurred after construction gets completed will be expensed out Interest of 186000 on construction financing paid during construction Capitalized Interest incurred during construction period is to be capitalized to the cost of asset Purchase of building    See Answer
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