November 20×6, Kerry removed unwanted structures on a piece of previously purchased freehold land that was intended for construction of a factory building for use in its business. The freehold land was purchased for $300,000 in May 20×6. The cost of removal and cleaning was $50,000 and this was paid in cash on 30 November 20×6.
On 1 December 20×6, Kerry started the construction of a factory building on that freehold land. On 1 August 20×7, the construction was completed, and the building became ready for service. Total cost related to the construction was $880,000 and was fully paid for in cash on 1 August 20×7. Kerry estimates the building to have an economic life of 70 years and a useful life of 40 years with a residual value of $400,000. Kerry uses the straightline depreciation method.
On 1 October 20×7, Kerry had $300,000 in cash.
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On 13 April 20×8, Kerry hired technicians to inspect, maintain, and repair the lights in the building. Total cost related to this inspection was $3,500 by cash on the same day. In September 20×8, Kerry built an extension to the building. The extension increased the floor area of the factory. The extension was completed on 30 September 20×8. Total cost related to this extension was $65,000 and was paid for in cash on the same date.
(i) Prepare the journal entry for the removal and cleaning on 30 November 20×6.
(ii) Prepare the journal entry for the recognition of the factory building on 1 August 20×7.
(iii) Using the information provided, help prepare Kerry’s adjusted trial balance (partial) on 30 September 20×8 for the relevant accounts.
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