cost of self constructed assets assume that bolton company purc 252208

Cost of self-constructed assets. Assume that Bolton Company purchased a plot of the land for $90,000 as a factory site. A small office building sits on the plot, conservatively appraised at $20,000. The company plans to use the office building after making some modifications and renovations (item (4) below). The company had plans drawn for a factory and received bids for its construction. It rejected all bids and decided to construct the factory itself. Management believes that plant asset accounts should include the following additional items:

(1) Materials and Supplies for Factory Building …………….……….……. $200,000

(2) Excavation of Land …………………………………….………………… 12,000

(3) Labor on Construction of Factory Building ……………………….……. 140,000

(4) Cost of Remodeling Old Budding into Office Building ………………… 13,000

(5) Interest Paid on Cash Borrowed by Bolton to Construct Factory* ……….. 6,000

(6) Interest Forgone on Bolton’s Own Cash Used …………………………….. 9,000

(7) Cash Discounts on Materials Purchased for Factory Building ……………… 1,000

(8) Supervision by Management on Factory Building ………………………… 10,000

(9) Workers’ Compensation Insurance Premiums on Labor in (3) ………..…… 8,000

(10) Payment of Claims for Injuries During Construction of Factory Building

Not Covered by Insurance ……………………………………………………… 3,000

(11) Clerical and Other Expenses on Construction of Factory Building …..…… 8,000

(12) Paving of Streets and Sidewalks ………………………………………..…. 5,000

(13) Architect’s Plans and Specifications of Factory Building ………………….. 4,000

(14) Legal Costs of Conveying Land ……………………………………………. 2,000

(15) Legal Costs of Injury Claim During Construction

of Factory Building ………………………………………………………..….… 1,000

(16) Income Credited to Retained Earnings account (the difference between

the forgone cost and the lowest contractor’s bid) ………………………..…… 11,000

*This interest is the entire amount of interest paid during the construction period.

Show in detail the items Bolton should include in the following accounts: Land, Factory Building, Office Building, and Site Improvements. Explain the reason for excluding any of these items from the four accounts.

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