ACCOUNTING
After securing lease commitments from several major stores, Auer Shopping Center, Inc was organized and built a shopping center in a growing suburb. The shopping center would had opened on scheduled January 1, 2020 if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2010. All of the additional construction costs were incurred as a result of the tornado were covered by insurance.
In July 2009, in anticipation of the scheduled January opening a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space and manager the property. A summary of some of the costs incurred in 2009 and the firs nine months of 2010 follows:
2009 January 1, 2010 to September 30, 2010
Interest on Mortgage Bonds 720,000 540,000
Cost of obtaining tenants 300,000 360,000
Promotional Advertising 540,000 557,000
The promotional advertising campaign was designed to familiarize shoppers the center. Had it been known in time that the center would not open until October 2010, the 2009 expenditure would not had been made. The advertising had to be repeated in 2010 .
All of the tenants who had leased space in the shopping center at the time of the tornado had accepted the October occupancy date on condition the rental charge for the first 9 months of 2010 was cancelled.
Instructions:
Explain how each of the costs for 2009 and the first 9 months of 2010 should be treated in the accounts of the shopping center corporation. Give reasons for each treatment?
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