Case study on MacCloud Winery
1. Applying the principles of accrual accounting, how should Mike treat the expenditures for the land, vines, vine planting, fertilizing, water? Be specific regarding the treatment over time, including amounts, and the rationale for the treatments. Answer:
Following the key accrual accounting concepts: Conversation, Realization and Matching, we think Mike should treat the expenditures as follows: |No. |Item Description |Treatment over time |Rationale for the treatment | |1 |Building lease $5,000 per year |Expense |Mike can not control the property as the lease contract did not | | | |Be amortized by $5,000 per year |mention about Mike might assume ownership of the leased building. | |2 |Purchase of land $250,000 |Asset |Mike owns the land after purchase | | | |Be depreciated according to its service life | | |3 |Bank loan $180,000 for land purchase |loan payable in liability |It is a source for the land | |4 |Interest for land purchase |Be capitalized as part of land asset. |It is an amount related to borrowing made to finance the land and it | | | | |is identifiable. | |5...
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