Question

Allocating payments and receipts to fixed asset accounts

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.

a.	Fee paid to attorney for title search	$3,000
b.	Cost of real estate acquired as a plant site: Land	285,000
	Building (to be demolished)	60,000
c.	Delinquent real estate taxes on property, assumed by purchaser	15,000
d.	Cost of razing and removing building acquired in (b)	5,000
e.	Proceeds from sale of salvage materials from old building	4,000	*
f.	Special assessment paid to city for extension of water main to the property	30,000
g.	Architect’s and engineer’s fees for plans and supervision	50,000
h.	Premium on one-year insurance policy during construction	5,000
i.	Cost of filling and grading land	13,000
j.	Money borrowed to pay building contractor	800,000	*
k.	Cost of repairing windstorm damage during construction	5,500
l.	Cost of paving parking lot to be used by customers	32,000
m.	Cost of trees and shrubbery planted	10,000
n.	Cost of floodlights installed on parking lot	3,000
o.	Cost of repairing vandalism damage during construction	3,000
p.	Proceeds from insurance company for windstorm and vandalism damage	8,000	*
q.	Payment to building contractor for new building	700,000
r.	Interest incurred on building loan during construction	34,000
s.	Refund of premium on insurance policy (h) canceled after 11 months	400	*

Required:

1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Choose the correct account from the dropdown list for each letter and enter the appropriate amount. Enter receipts as negative amounts using the minus sign.

Item	Account	Amount
a.	Land	$
b.	Land	$
c.	Land	$
d.	Land	$
e.	Land	$
f.	Land	$
g.	Land	$
h.	Land Improvements	$
i.	Land Improvements	$
j.	Land Improvements	$
k.	Building	$
l.	Building	$
m.	Building	$
n.	Building	$
o.	Building	$
p.		$
q.		$
r.		$
s.		$

2. Determine the amount debited to Land, Land Improvements, and Building.

Land	Land Improvements	Building
$	$	$

3. Land used as a plant site   lose its ability to provide services; thus, it   depreciated. However, land improvements   lose their ability to provide services as time passes and are, therefore,  .

4. What would be the effect on the income statement and balance sheet if the cost of filling and grading land of $13,000 [payment (i)] was incorrectly classified as Land Improvements rather than Land? Assume Land Improvements are depreciated over a 20-year life using the doubledeclining- balance method.

Please answer in the format that I have provided.

Thanks

Answer 1

Land and Land Improvements Requirement 1&2 Land Other Land Improvements Building Accounts Item 3000 а. b. 345000 15000 C. d. 5000 -4000 е. f. 30000 50000 g h. 5000 i. 13000 j. -800000 k. 5500 32000 10000 m. 3000 n. 3000 O. -8000 p. 700000 q. 34000 r. -400 S. Totals 407000 45000 788600 Requirement 4 Since Land Improvement are depreciated expenses of $1300 ($13000 x 1/20 x 2) would be overstated and net income would be understated by $1300 on the Income Statement.On the balance sheet, Land would be understated by $13000, Land |Improvements would be overstated by $ $11700 ($13000- $1300) and Owner's Capital would be understated by $1300.