Question

the following payments and receipts are related to land, land improvement ls, and buildings acquired for use in a wholesale ceramic business. the receipts are identified by an asterisk.

1.) Assign each payment and receipt to land (unlimited life), land improvements (limited life), building, or other accounts. Choose the correct account from the drop down list for each letter and enter the appropriate amount. Enter receipts as negative amounts using the minus sign.

2.) determine the amount debited to land, land improvements, and building.

3.) since the land used as a plant site does/does not lose its ability to provide services, it is/ is not depreciated. Land improvements do/do not lose their ability to provide services as time passes and are therefore depreciated/ not depreciated.

4.) what would be the effect on the current years income statement and balance sheet if the cost of filling and grading land of $18,700 [payment (i)] was incorrectly classified as land improvements rather than land? Assume that land improvements are depreciated over a 20-year life using the double-declining-balance method:

A) depreciation expense would be overstated & land would be overstated

B) depreciation expense would be overstated & land improvements would be overstated

C) depreciation expense would be understated & land improvements would be overstated

D) land would be overstated & net income would be understated

a. $3,200 b. 340,800 32,400 19,200 5,400 c. d. e. 3,200 F. 12,800 46,900 h. i. Fee paid to attorney for title search Cost of real estate acquired as a plant site: Land Building (to be demolished) Delinquent real estate taxes on property, assumed by purchaser Cost of tearing down and removing building acquired in (b) Proceeds from sale of salvage materials from old building Special assessment paid to city for extension of water main to the property 9. Architect's and engineer's fees for plans and supervision Premium on one-year insurance policy during construction Cost of filling and grading land Money borrowed to pay building contractor k. Cost of repairing windstorm damage during construction Cost of paving parking lot to be used by customers m. Cost of trees and shrubbery planted Cost of floodlights installed on parking lot Cost of repairing vandalism damage during construction Proceeds from insurance company for windstorm and vandalism damage Payment to building contractor for new building Interest incurred on building loan during construction Refund of premium on insurance policy (h) canceled after 11 months Required: 4,500 18,700 799,200* 5,900 1. 16,200 9,600 1,100 0. 2,600 p. 6,400* 9. 852,000 r. 40,000 S. 375*

Answer 1

C) depreciation expense would be understated & land improvements would be overstated