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    Razel Tercino
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    Happy Corp. incurred significant costs to purchase land, demolish a dilapidated building, construct a new building, and acquire machinery and equipment. Total costs capitalized to property and equipment were over $3 million. However, some costs such as interest, property taxes, and modifications ordered by inspectors should have been expensed. Additionally, $20,000 of insurance could have covered costs of injuries to construction workers.

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    Happy Corp. incurred significant costs to purchase land, demolish a dilapidated building, construct a new building, and acquire machinery and equipment. Total costs capitalized to property and equipment were over $3 million. However, some costs such as interest, property taxes, and modifications ordered by inspectors should have been expensed. Additionally, $20,000 of insurance could have covered costs of injuries to construction workers.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    136 views2 pages

    QUIZ - Removal

    Uploaded by

    Razel Tercino
    Happy Corp. incurred significant costs to purchase land, demolish a dilapidated building, construct a new building, and acquire machinery and equipment. Total costs capitalized to property and equipment were over $3 million. However, some costs such as interest, property taxes, and modifications ordered by inspectors should have been expensed. Additionally, $20,000 of insurance could have covered costs of injuries to construction workers.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    HAPPY CORP.

    had the following items recorded in its “PROPERTY and EQUIPMENT” account as at December 31, 2016:

    Items debited to the account:

    Cash paid to purchase a land with a 660,000 Fixed overhead charged to the building 300,000
    dilapidated building at the beginning of the
    year
    Mortgage assumed on the land purchased 240,000 Cost of temporary quarters for construction 150,000
    crew
    Commission paid to real estate agent 150,000 Cost of temporary building to house tools and 90,000
    materials
    Attorney’s fee in connection with the 75,000 Cost of permanent fencing 86,000
    acquisition
    Cost of razing the old structure 120,000 Insurance on building during construction 31,500
    Landfill for building site 50,000 Profit on construction, as the difference 360,000
    between the appraised value of the asset after
    construction and actual cost incurred
    Grading, leveling and landscaping costs 50,000 Payments made to construction workers 90,000
    (permanent improvement) injured during the construction not covered by
    insurance
    Special assessment by for public 25,000 Payment to tenants of the old building 90,000
    improvement ordered by management to vacate the
    premises
    Interest on loan for construction of a new 81,000 Modification of building ordered by building 225,000
    building (based on average costs incurred) inspectors
    Building construction labor costs 800,000 Property taxes on land covering the period 240,000
    2013-2016
    Building construction materials 672,000 Interest that would have been earned had the 150,000
    money used the period of construction been
    invested in the money market
    Cost of temporary fencing the property 28,000 Invoice cost of machinery acquired 381,000
    during the construction
    Architect’s fees 112,500 Freight, unloading, and delivery charges 22,500
    Cost of paving driveway and parking lot 70,000 Allowances, hotel accommodations etc, paid 20,000
    to foreign technicians during installation and
    test run of machines
    Excavation expenses, including a P90,000 cost 135,000 Royalty payment on machines purchased 75,000
    of excavation equipment (based on audits produced and sold)

    Items credited to the account:

    Salvage proceeds from demolished building 15,000


    Proceeds from sale of the excavation equipment 30,000
    Proceeds from sale of produce of the machinery test run 3,500

    In addition, you discovered that compensation for the worker’s injury was necessary because it was not covered by the
    particular insurance policy purchased by the company. Accident insurance that would have covered the injury would
    have cost an additional P20,000. The modifications ordered by the building inspectors resulted from poor planning by
    the company.
    COMPUTE THE FOLLOWING:

    A B C D
    1. Land 1,575,000 1,500,000 1,440,000 1,380,000
    2. Building 2,565,000 2,615,000 2,400,000 2,370,000
    3. Land Improvements 268,500 232,500 156,000 120,000
    4. Machinery and Equipment 381,000 397,500 420,000 423,500
    5. Total depreciable PPE 3,191,000 3,141,000 2,976,000 2,946,000
    6. Amount that should be expensed as incurred 75,000 150,000 300,000 450,000
    during the current year.

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