Basket Purchase of Noncurrent Operating Assets
Wenatcher Wholesale Company incurred the following costs in 2008 for a warehouse acquired on July 1, 2008, the beginning of its fiscal year:
|
Cost of land |
$ 90,000 |
|
Cost of building |
510,000 |
|
Remodeling and repairs prior to occupancy |
67,500 |
|
Escrow fee |
10,000 |
|
Landscaping |
$25,000 |
|
Property tax for period prior to acquisition |
15,000 |
|
Real estate commission |
30,000 |
The company signed a non interest bearing note for $500,000 on July 1, 2008. The implicit interest rate is 10% compounded semiannually. Payments of $25,000 are to be made semiannually beginning December 31, 2008, for 10 years.
Instructions: Give the required journal entries to record (1) the acquisition of the land and building (assume that cash is paid to equalize the cost of the assets and the present value of the note) and (2) the first two semiannual payments, including amortization of note discount.