108. On July 1, 2006, Jekel & Hyde Inc. Purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below:

Purchase price	$185,000
Title insurance	$1,500
Legal fees to purchase land	$1,000
Cost of razing old building on lot	8,500
Proceeds from sale of salvageable materials	(1,200	)
Property taxes, January 1, 2006 - June 30, 2006	3,000
Cost of grading and filling building site	9,000
Cost of building construction	620,000
Interest on construction loan	12,000
Cost of constructing driveway	8,000
Cost of parking lot and fencing	12,000

Required:

Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.

Answer:

Land:
Purchase price			$185,000
Title insurance			1,500
Legal fees			1,000
Cost of razing old building	$8,500
Proceeds from sale of salvaged materials	(1,200	)	7,300
Property tax prior to 6/30			3,000
Cost of grading and filling building site			9,000
Total			$206,800
Building:
Cost of building construction			$620,000
Interest on construction loan			12,000
Total			$632,000
Land improvements:
Driveway			$ 8,000
Parking lot and fencing			12,000
Total			$20,000

Learning Objective: 1 Level of Learning: 3

109. Mad Hatter Enterprises purchased new equipment for $365,000, FOB shipping point. Other costs connected with the purchase were as follows:

State sales tax	29,200
Freight costs	5,600
Insurance while in transit	800
Insurance after equipment placed in service	1,200
Installation costs	2,000
Testing, including $300 of spoilage	700