The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk next to the item letter.
a. | Fee paid to attorney for title search | $ 2,395 |
b. | Cost of real estate acquired as a plant site: Land | 283,200 |
Cost of real estate acquired as a plant site: Building | 57,400 | |
c. | Delinquent real estate taxes on property, assumed by purchaser | 15,175 |
d. | Cost of razing and removing building acquired in B | 5,450 |
e.* | Proceeds from sale of salvage materials from old building | 3,665 |
f. | Special assessment paid to city for extension of water main to the property | 29,505 |
g. | Architect’s and engineer’s fees for plans and supervision | 59,490 |
h. | Premium on one-year insurance policy during construction | 5,760 |
i. | Cost of filling and grading land | 12,270 |
j.* | Money borrowed to pay building contractor | 959,000 |
k. | Cost of repairing windstorm damage during construction | 5,085 |
l. | Cost of paving parking lot to be used by customers | 35,040 |
m. | Cost of trees and shrubbery planted | 10,960 |
n. | Cost of floodlights installed on parking lot | 2,050 |
o. | Cost of repairing vandalism damage during construction | 2,735 |
p.* | Proceeds from insurance company for windstorm and vandalism damage | 7,360 |
q. | Payment to building contractor for new building | 804,000 |
r. | Interest incurred on building loan during construction | 36,380 |
s.* | Refund of premium on insurance policy (h) canceled after 11 months | 470 |
Required: | |
1. | Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts in the table provided. Enter receipts as negative amounts using the minus sign. |
2. | Determine the amount debited to Land, Land Improvements, and Building. |
3. | The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation. |
4. | What would be the effect on the income statement and balance sheet if the cost of filling and grading land of $12,270 [payment (i)] was incorrectly classified as Land Improvements rather than Land? Assume Land Improvements are depreciated over a 20-year life using the double-declining-balance method. |
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