Problem 9-2A (Part Level Submission) For the year ended December 31, 2015, Westl

Question

Problem 9-2A (Part Level Submission) For the year ended December 31, 2015, Westlake Ltd. had the following transactions related to the purchase of property. Assume all transactions are for cash unless otherwise stated. Purchased real estate for $562,700, paying $152,100 cash and signing a mortgage payable for the balance. The site had an old building on it and the fair values of the land and building were $498,800 and $63,900, respectively. The old building will be demolished and a new apartment building will be constructed on the site. Paid legal fees of $10,270 on the real estate purchase of February 7 Paid $28,500 to demolish the old building and make the land ready for the construction of the apartment building Received $8,100 from the sale of material from the demolished building. Paid $2,000 to grade the land in preparation for the construction of the apartment building Feb. 7 9 15 17 28 Mar. 2 Paid architect fees of $36,910 to design the apartment building July 2 The full cost for construction of the apartment building was $1,284,700. Paid $336,600 cash and signed a bank loan payable for the balance 3 Aug. 29 Purchased a one-year insurance policy on the finished building for $6,210 Paid $25,270 for the paving of sidewalks and a parking lot for the building.

Explanation / Answer

We can have the following entries, if the land was purchased for development of the place as an apartment building, the value of the land and the building can be transferred to a new account building new , at the time of completion of the construction of the new apartment building.

All the expenses incurred on the new apartment building , from the time of paying the architech fee can be capitalised as capital work in progress and capitalised after the completion of the project as shown below.

WESTLAKE LTD. General journal for the year ended December 31, 2017 Date Account title Debit Credit Feb.7 Land 498800 Building 63900 Cash 152100 Mortgage Payable 410600 (Purchase of real estate) Feb.9 Land 9104 Building 1166 Cash 10270 (Legal fee paid for real estate purchase) Feb.15 Building 28500 Cash 28500 (Payment made for demolishing old building) Feb.17 Cash 8100 Building 8100 (Cash received from sale of material from demolished building) Feb.28 Building 2000 Cash 2000 (Cash paid for grading the land) Mar.2 Building 36910 Cash 36910 (Payment of Architect fee for the new building) July.2 Building 1284700 Cash 336600 Bank loan 948100 (Payment of construction cost) July.3 Building 6210 Cash 6210 (Purchase of one-year insurance policy for the new building) Aug.29 Building 25270 Cash 25270 (Payment made for the paving of side walks and parking for the building)

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