26-1

Q1 A (950,000+8,000,000+300,000=9,250,000)
Q2 A (4,500,000+200,000 = 4,700,000)

26-2 A 4,000,000+150,000+50,000=4,200,000

26-3 Q1-B Q2-B

Land Building
Purchase price of land P600,000
Legal fees for contract 20,000
Architect fee P 80,000
Demolition of old building 50,000
Sale of scrap (30,000)
Construction cost 3,500,000
Total cost P620,000 P3,600,000

26-4 A
Land Building
Purchase price of land 1,000,000
Demolition 100,000
Architect fee 175,000
Legal fee 25,000
Construction cost 5,450,000
Salvaged materials (50,000)
Total cost 1,025,000 5,675,000

26-5
Q1 A 4,550,000
Q2 A 9,700,000
Q3 A 950,000

26-6 Q1-D Q2-A

Land Building
Cash paid for land and old building 1,000,000
Removal of old building 50,000
Payment to tenants of old building to vacate premises 15,000
Architect fee 200,000
Building permit 30,000
Fee for title search 10,000
Survey before construction 20,000
Excavation 100,000
Cost of new building constructed 6,000,000
Assessment fee 5,000
Cost of grading, leveling, and landfill 45,000
Driveways and walks 40,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 60,000
Cost of construction changes 50,000
Total 1,080,000 6,625,000
*Cost of replacing windows is treated as expense.

26-7 Q1-C Q2-A Q3-C

Land Building Land improvements
Fair value of land 1,800,000
Legal fees 10,000
Payment of mortgage 50,000
Payment of taxes 20,000
Cost of razing building 30,000
Grading and drainage 15,000
Architect fee 200,000
Payment to contractor 8,000,000
Interest cost 300,000
Driveway and parking lot 40,000
Cost of trees, shrubs…. 55,000
Cost of installing lights 5,000
Premium for insurance 25,000
Total 1,895,000 8,555,000 100,000

Payment of medical bills and the cost of open house party are outright expenses because they are not a necessary
cost of acquiring the land and building.

26-8 Q1-A Q2-B Q3-B

Land Office Bldg. Factory Bldg.
Purchase price 1,300,000 700,000
Materials 3,000,000
Excavation 100,000
Labor 2,500,000
Remodeling 200,000
Cash discounts (60,000)
Supervision 70,000
Compensation insurance 20,000
Clerical and other expenses 30,000
Pans and specifications 140,000
Legal cost – land 10,000
Total 1,310,000 900,000 5,800,000

1. Imputed interest on corporation’s own money is not capitalizable

2. Payment of claim for injuries not covered by insurance and the legal cost of injury claim are
treated as expense
3. Saving on construction is not recognized.

26-9 Q1-A Q2-B Q3-A Q4-D

Land Building Land improvement
Balance, Jan 01 3,500,000 6,000,000 900,000
Land acquired 1,250,000
Issuance of share capital
12/36 x 4,500,000 1,500,000
24/36 x 4,500,000 3,000,000
New parking lot…. 750,000
Balances, Dec 31 6,250,000 9,000,000 1,650,000

Balance of equipment, Jan 01 1,500,000

Equipment purchased 3,000,000
Freight and unloading charge 50,000
Installation cost 350,000
Equipment sold (500,000)
Total cost 4,400,000

26-10
Question 1 B
1st piece of land acquired
Cost 1,600,000
Payment of real estate agent 175,000
Cost of clearing land 50,000
Timber and gravel recovered (25,000) 1,800,000
nd
2 piece of land acquired (4,500,000 x 2/3) 3,000,000
Total cost of land under PPE 4,800,000

2nd piece of land with an old building

Land 2,000,000
Old building 1,000,000
Total appraised value 3,000,000
Allocated cost:
Land (4,500,000 x 2/3) 3,000,000
Old building (4,500,000 x 1/3) 1,500,000
Total purchase price 4,500,000

The 3rd piece of land acquired is classified as investment property

Question 2 B
Demolition of old building 100,000
New construction cost 5,000,000
Excavation fee 50,000
Architect fee 80,000
Building permit 70,000
Total cost of new building 5,300,000

Allocated cost of the old building is accounted for as loss because it is demolished to make room for a new
building construction.

26-11
Question 1 A
Cash paid for land 2,500,000
Mortgaged assumed including interest accrued 1,000,000
Commission 300,000
Legal fees, realty taxes and documentation 50,000
Cost of relocating squatters 100,000
Cost of land 3,950,000

Question 2 C
Cost of tearing down old building 200,000
Salvage value of old building (50,000)
Amount paid to contractor 5,000,000
Building permit fee 50,000
Excavation 50,000
Architect fee 200,000
Cost of building 5,450,000

Question 3 A
Invoice cost 2,000,000
Freight 60,000
Custom duties and other charges 140,000
Allowances and hotel accommodation 400,000
Cost of machine 2,600,000

The cost of fencing property is classified as land improvement

The interest that would have been earned is an opportunity cost which is not recorded

26-12 Q1-A Q2-B Q3-C

Land Building Leasehold improvement

Balances, Jan 01 1,500,000 4,000,000 500,000

Acquisition of land #621
Purchase price 3,000,000
Commission 60,000
Clearing cost 15,000
Sale of timber and gravel (5,000)
Acquisition of land #622
Purchase price 2,500,000
Cost of demolition 300,000
New building
Construction cost 5,000,000
Excavation fee 50,000
Architectural design 150,000
Building permit 40,000
Improvements
Electrical work 350,000
Construction extension
(800,000 x ½) 400,000
Improvements on office space 650,000
Balances, Dec 31 7,070,000 9,540,000 1,900,000

The third tract of land should be presented as current asset because it was classified as held for sale

26-13 26-14
1. B 1. B
2. C 2. D
3. B 3. C
4. A 4. B
5. C 5. A