Question

Lake Company was formed on January 1, 2011, and began constructing a new plant. At the end of 2011, its auditor discovered that all expenditures involving long-term assets had been debited to an account called Fixed Assets. An analysis of the Fixed Assets account, which had a year-end balance of $1,329,866, disclosed that it contained the following items:
Cost of land .....................$ 160,300
Surveying costs ................... 2,050
Transfer of title and other fees required by the county ..... 460
Broker’s fees for land ................. 10,572
Attorney’s fees associated with land acquisition ...... 3,524
Cost of removing timber from land ........... 24,800
Cost of grading land .................. 2,100
Cost of digging building foundation ........... 17,550
Architect’s fee for building and land improvements
(80 percent building) ................ 33,600
Cost of building construction ............. 357,500
Cost of sidewalks .................. 5,700
Cost of parking lots ................. 27,200
Cost of lighting for grounds ............. 40,150
Cost of landscaping ................. 5,900
Cost of machinery ................. 496,500
Shipping cost on machinery ............. 27,650
Cost of installing machinery .............. 88,100
Cost of testing machinery ............... 10,800
Cost of changes in building to comply with
safety regulations pertaining to machinery ....... 6,270
Cost of repairing building that was damaged in
the installation of machinery ............. 4,450
Cost of medical bill for injury received by employee
while installing machinery............. 1,280
Cost of water damage to building during heavy
rains prior to opening the plant for operation ...... 3,410
Account balance ................. $1,329,866
Lake Company sold the timber it cleared from the land to a firewood dealer for $3,500.
This amount was credited to Miscellaneous Income.

During the construction period, two of Lake’s supervisors worked part-time on the construction project. A portion of their total annual salaries of $45,000 should be allocated to parts the project based on the amount of time spent. They spent two months on the purchase and preparation of the land, six months on the construction of the building (approximately one-sixth of which was devoted to improvements on the grounds), and one month on machinery installation. When the plant began operation on October 1, the supervisors returned to their regular duties. Their salaries were debited to Factory Salaries Expense.

REQUIRED
1. Prepare a schedule with the following column headings: Land, Land Improvements, Buildings, Machinery, and Expense. Place each of the above expenditures in the appropriate column. Negative amounts should be shown in parentheses. Total the columns.
2. What impact does the classification of the items among several accounts have on evaluating the profitability performance of the company?



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  • CreatedSeptember 10, 2014
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