Question

Allocating payment xed asset accounts The following payents and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asteris a. Fee paid to attorney for title seardch $2,500 b. Cost of real estate acquired as a plant site: Land 285,000 Building (to be demolished) 55,000 c. Delinquent real estate taxes on property, assumed by purchaser 15,500 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 29,000 g. Architect's and engineer's fees for plans and supervision 60,000 h. Premium on one-year insurance policy during construction 6,000 Cost of filling and grading land L. 12,000 Money borrowed to pay building contractor 1 900,000 k. Cost of repairing windstorm damage during construction 5,500 Cost of paving parking lot to be used by customers L 32,000 m. Cost of trees and shrubbery planted 11,000 n. Cost of floodlights installed on parking lot 2,000 Cost of repairing vandalism damage during construction 0. 2,500 p. Proceeds from insurance company for windstorm and vandalism damage 7,500 q. Payment to building contractor for new building 800,000 Interest incurred on building loan during construction 34,500 S Refund of premium on insurance policy (h) canceled after 11 months 500

Answer 1

1)
	Item	Account	Amount
a	Fees paid to attorney for title search	Land	$                    2,500.00
b	Cost of real estate acquired as a plant site
	Land	Land	$              3,40,000.00
	Building	Land	$                  15,500.00
c	Delinquent real estate taxes on property,assumed by purchaser	Land	$                    5,000.00
d	Cost of razing and removing building	Land	$                   -4,000.00
e	Proceeds from sale of salvage materials from old building	Land	$                  29,000.00
f	Special assessment paid to city for extension of water main to the property
g	Architect's and engineer's fees for plans and supervision	Building	$                  60,000.00
h	Premium on one year insurance policy during construction	Building	$                    6,000.00
i	Cost of filling and grading land	Land	$                  12,000.00
j	Money borrowed to pay building contractor	Other Accounts	$             -9,00,000.00
k	Cost of repairing windstorm damage during construction	Other Accounts	$                    5,500.00
l	Cost of paving parking lot to be used by customers	Land Improvement	$                  32,000.00
m	Cost of trees and shrubbery planted	Land Improvement	$                  11,000.00
n	Cost of floodlights installed on parking lot	Land Improvement	$                    2,000.00
o	Cost of repairing vandalism damage during construction	Other Accounts	$                    2,500.00
p	Proceeds from insurance company for windstorm and vandalism damage	Other Accounts	$                   -7,500.00
q	Payment to building contractor for new building	Building	$              8,00,000.00
r	interest incurred on building loan during construction	Building	$                  34,500.00
s	Refund of premium on insurance policy (h) cancelled after 11 month	Building	$                      -500.00
2)	Amount debited to Land,Land and Building and Building
	Account	Total Amount
	Land	$                                                                            40,00,000.00
	Land Improvement	$                                                                                  45,000.00
	Building	$                                                                              9,00,000.00
3)	Plant used as a Land site does not lose its identity to provide services, it is not depreciated.However land improvements do lose their ability to provide services as time passes and are therefore depreciated.
4)	Income statement	Depreciation Expense	Net Income
	($12000/20)*2=$1200	$1200 Overstated	$1200 Understated
	Balance Sheet
	($12000/20)*2=$1200	Land Understated-$12000
		Land Improvement overstated-$10800($1200-$1200)
		Owner's Capital-understated $1200