Gamma Ltd. acquired a tract of land with a building for $600,000. The closing statement indicated that the land’s assessed tax value was $400,000 and the building’s value was $200,000. The land was acquired as a site for Gamma's new office building and immediately after acquisition the building was demolished at a cost of $60,000. 

Gamma Ltd. constructed a new building, for $900,000 plus the following costs: 

Building design $ 20,000 

Construction foreman salary 40,000 

Imputed interest on retained earnings used during construction 30,000 

Since Gamma has no debt, and a surplus of cash, all amounts were paid with cash.

a) Calculate the cost of the land. 

b) Calculate the cost of the building. 

c) Assume your answer to b) above was $1,000,000. Gamma Ltd. has a December 31 yearend. The building was completed and occupied on September 30, 2020. The estimated useful life of the building is 20 years, the residual value is estimated to be $100,000, and double-declining-balance depreciation is used. Calculate depreciation expense for 2020 and 2021. 

d) Assume your answer to b) above was $1,000,000. The building was completed and occupied on January 1, 2020. The estimated useful life of the building is 20 years and the residual value is estimated to be $100,000. On January 1, 2020, Gamma received a government grant of $400,000 to assist in the cost of the building. Prepare the journal entries required during 2020 related to the government grant and depreciation of the building. Assume straight-line amortization.

Answer rating: 100% (QA)

Land New building Purchase cost 600000 as the intent of buying the building was to demolish ... View the full answer