Blossom Corporation owns and manages a small 10-store shopping centre and classi
ID: 2551047 • Letter: B
Question
Blossom Corporation owns and manages a small 10-store shopping centre and classifies the shopping centre as an investment property. Blossom has a May 31 year end and initially recognized the property at its acquisition cost of $10.7 million on June 2, 2016. The acquisition cost consisted of the purchase price of $10 million, costs to survey and transfer the property of $475,000, and legal fees for the acquisition of the property of $225,000. Blossom determines that approximately 28% of the shopping centre's value is attributable to the land, with the remainder attributable to the building. The following fair values are determined Fair Value $10,650,000 $10,547,000 $11,159,000 Date May 31, 2017 May 31, 2018 May 31, 2019 Blossom expects the shopping centre building to have a 35-year useful life and a residual value of $1.4 million. Blossom uses the straight-line method for depreciation. Assume that Blossom decides to apply the cost model. What journal entries, if any, are required each year? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.,) DateAccount Titles and Explanation Debit CreditExplanation / Answer
Cost of Land (28% of $ 10.7 million) $ 29,96,000 Cost of Building (10.70 million - 2.996 million) $ 77,04,000 Blosoom Corporation uses cost modal. So, there is no use of fair value given in question. Secondly, Depreciation would be calculated only value of Builiding. No depreciation would be calculated for value of land. Depreciation would be calculated using SLM method Useful life : 35 years Residual value : $ 14,00,000 So, depreciation/year $ 1,80,114 (77,04,000-14,00,000)/35 years Journal entries Date Particulars Debit ($) Credit ($) May 31, 2017 Depreciation expense 1,80,114 Accumated Depreciation -Shopping centre builiding 1,80,114 (Dereciation at end of year 1) May 31, 2018 Depreciation expense 1,80,114 Accumated Depreciation - Shopping centre builiding 1,80,114 (Dereciation at end of year 2) May 31, 2019 Depreciation expense 1,80,114 Accumated Depreciation - Shopping centre builiding 1,80,114 (Dereciation at end of year 3)