Wasson Company Purchased Land and a Building in 2016 at a Cost

question 58

Essay

Wasson Company purchased land and a building in 2016 at a cost of $6,000,000.The land was valued at $1,000,000.At the time of purchase,the estimated useful life of the building was 25 years.The company depreciates the building on a straight-line basis and has chosen to record a full year of depreciation in the year of acquisition,and none in the year of disposal.
It is now 2026 and Wasson has found it necessary to replace all of the windows in this building at a cost of $1,000,000.Upon further review,management concluded that the windows should have been recorded as a separate component because,as of 2016,their useful lives did not extend for 25 years-the manufacturer's specifications indicate that the windows would be expected to remain in functioning condition until 2026.The estimated value of the windows when the building was purchased was $800,000.
Required:
a.Record the journal entry to record the replacement of the windows assuming that the windows were recorded as a separate component.
b.Assume that LaSalle committed an error in not componentizing the windows separately from the building.Record the adjusting journal entry or entries required to correct this error.
c.Record the journal entry to record the replacement of the windows after having properly recorded the windows as a separate component in part (b).

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Definitions:

Disposable Income

The sum of money households can spend or save once income taxes have been deducted.

Saving

The process of setting aside a portion of current income for future use, typically to achieve long-term financial goals or provide a safety net.

Corporation's Capitalization

The total value of a corporation's issued shares of stock, debt, and other financial instruments, representing the company's funding structure.

Corporate Stock

Equity instruments that signify an ownership position in a corporation, entitling the holder to a portion of the company's assets and profits.