Prepare the general journal entries for the following transactions. 20-a Jan. 2 Purchased land with a building on it for $750,000. The land is worth $300,000. Paid $150,000 down and signed a mortgage to be paid over 20 years. Dec. 31 Depreciation is computed using the straight-line method. The building has an estimated salvage value of $75,000 and an estimated life of 20 years. 20-b Jul. 1 The building and the land are sold for $825,000 cash. If an amount box does not require an entry, leave it blank.

Journal Entries:

Jan. 2:

Debit Land $300,000

Debit Building $450,000

Credit Cash $150,000

Credit Mortgage $600,000

To record the purchase of land and building.

December 31:

Debit Depreciation Expense on Building $18,750

Credit Accumulated Depreciation $18,750

To record the depreciation expense for the year.

July 1:

Debit Depreciation Expense on Building $9,375

Credit Accumulated Depreciation $9,375

To record depreciation expense for six months.

Debit Cash Account $825,000

Credit Sale of Land $330,000

Credit Sale of Building $495,000

To record the sale of the land and building for cash.

Debit Sale of Land $300,000

Debit Sale of Building $450,000

Credit Land $300,000

Credit Building $450,000

To close the accounts to the sale of asset accounts.

Debit Accumulated Depreciation $28,125

Credit Sale of Building $28,125

To close the accumulated depreciation account.

Explanation:

a) Data and Calculations:

Jan. 2

Cost of purchased land with building = $750,000

Value of the land = $300,000

Value of the building = $450,000 ($750,000 - $300,000)

Ratio of land to building = 4:6

Payment made on the purchase = $150,000

Allocation of payment:

Land = $60,000 ($150,000 * 0.4)

Building = $90,000 ($150,000 * 0.6)

Mortgage signed = $600,000

Allocation of Mortgage:

Land = $240,000 ($600,000 * 0.4)

Building = $360,000 ($600,000 * 0.6)

Method of depreciation = straight-line

Salvage value of building = $75,000

Estimated life of building = 20 years

Depreciable amount of building = $375,000 ($450,000 - $75,000)

Depreciation expense per year = $18,750 ($375,000/20)

Depreciation expense for six months = $9,375 ($18,750/12 * 6)

July 1: Sale of building and land = $825,000

Allocation of sale proceeds:

Building = $495,000 ($825,000 * 0.6)

Land = $330,000 ($825,000 * 0.4)

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