1. Cost treatment. Consider the following costs of Shamrock Company: • Cost of g

Question

1. Cost treatment. Consider the following costs of Shamrock Company: • Cost of grading land prior to construction • Cost of material used during trial runs of new machinery • Delinquent property taxes on newly acquired land • Damage to equipment, which occurred during installation • Fine for fire code violation in building • Freight charges on newly acquired equipment • Cost of parking lot constructed on property • Cost of three wastebaskets purchased for office use • Cost of clearing land prior to construction • Cost of purchasing used equipment • Interest incurred to purchase machinery on credit • Current property taxes on land and building • Attorney’s fees for land and building purchase • Construction costs of fence at company headquarters • Construction costs of new building • Cost of sprinkling system for landscaping Instructions a. Identify which of the preceding costs should be charged to asset accounts? b. For the costs that you identified in part (a), indicate which asset account(s) should be increased.

Explanation / Answer

a) COSTS CHARGED TO ASSET ACCOUNTS:

____________________________________________________________________________________

1. COST OF GRADING LAND PRIOR TO CONSTRUCTION

2. COST OF MATERIAL USED DURING TRIAL RUNS OF NEW MACHINERY

3. DELINQUENT PROPERTY TAX ON NEWLY ACQUIRED LAND

4. FREIGHT CHARGES ON NEWLY ACQUIRED EQUIPMENT

5. COST OF PARKING LOT CONSTRUCTED ON PROPERTY

6. COST OF CLEARING LAND PRIOR TO CONSTRUCTION

7. COST OF PURCHASING USED EQUIPMENT

8. ATTORNEY FEES FOR LAND AND BUILDING PURCHASE

9. CONSTRUCTION COST OF FENCE AT COMPANY HEADQUARTERS

10. CONSTRUCTION COST OF NEW BUILDING

11. COST OF SPRINKING SYSTEM TO LANDSCAPING INSTRUCTIONS

b) WHICH ASSET ACCOUNT SHOULD BE INCREASED:

1. BUILDING

2. MACHINERY

3. LAND

4. EQUIPMENT

5. PROPERTY

6, BUILDING

7. EQUIPMENT

8. LAND

9. BUILDING

10. NEW BUILDING

11. LAND

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