Question

Allocating Payments and Receipts to Fixed Asset Accounts The following payments and receipts are related to land, land improvements, and buldings acquired for use in a wholesale ceramic business. The recelpts are identified an asterisk. a. Fee paid to attormey for title search $3,100 b. Cost of real estate acquired as a plant site: Land 325,200 Building (to be demolished) 30,900 Delinquent real estate taxes on property, assumed by purchaser C. 18,300 Cost of tearing down and removing building acqulred in (b) 5,100 Proceeds from sale of salvage materials from old building 3,000 f. Special assessment paid to city for extension of water main to the property 12,200 g. Architect's and engineer's fees for plans and supervision 44,700 h. Premium on one-year insurance policy during construction 4,300 1. Cost of filling and grading land 17,900 J. Money borrowed to pay building contractor 762,600* k. Cost of repairing windstorm damage during construction 5,600 L. Cost of paving parking lot to be used by customers 15,400 m. Cost of trees and shrubbery planted 9,200 n. Cost of floodlights installed on parking lot 1,100 Cost of repairing vandalism damage during construction O. 2,500 p. Proceeds from insurance company for windstorm and vandalism damage 6,100 q. Payment to building contractor for new bulding 813,000 Interest incurred on building loan during construction г. 38,200 S. Refund of premium on insurance policy (h) cancelet after 11 months

Answer 1

Land, Land Improvement and Buildings Land Other Improvement Building Accounts Item sooo Land 3100 356100 18300 5100 -3000 12200 44700 4300 17900 -762600 5600 0 - *- ¿sodo 15400 9200 1100 2500 -6100 813000 38200 -358 8 99842 Totals 409700 25700 3.Since the Land used as a plant site does not lose its ability 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.Since Land improvements are depreciated, depreciation expense of $1790 ( 17900 x 1/20 x 2) would be overstated and net income would be understated by $1790 on the income statement.On the balance sheet, Land would be understated by $17900. Land improvements would be overstated by $16110 ($17900 - $1790), and Owner's Capital would be undestated by $1790.