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 apparel business. The receipts are identified by an asterisk.

Item	Description	Amount
a.	Fee paid to attorney for title search	$3,000
b.	Cost of real estate acquired as a plant site: Land	313,700
b. Cost of real estate acquired as a plant site:	Building (to be demolished)	29,800
c.	Finders fee paid to real estate agency	17,600
d.	Delinquent real estate taxes on property, assumed by purchaser	4,900
e.	Architects and engineers fees for plans for new building	2,900
f.	Cost of removing building purchased with land in (b)	11,800
g.	Proceeds from sale of salvage materials from old building	43,100*
h.	Cost of filling and grading land	4,200
i.	Premium on 1-year insurance policy during construction	17,300
j.	Money borrowed to pay building contractor	735,700*
k.	Special assessment paid to city for extension of water main to the property	5,400
l.	Cost of repairing windstorm damage during construction	14,900
m.	Cost of repairing vandalism damage during construction	8,900
n.	Cost of trees and shrubbery planted	1,000
o.	Cost of paving parking lot to be used by customers	2,400
p.	Interest incurred on building loan during construction	5,900
q.	Proceeds from insurance company for windstorm and vandalism damage	36,900*
r.	Payment to building contractor for new building	784,300
s.	Refund of premium on insurance policy (i) canceled after 11 months	350*

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.		$
b.		$
c.		$
d.		$
e.		$
g.		$
h.		$
i.		$
j.		$
k.		$
l.		$
m.		$
n.		$
o.		$
p.		$
q.		$
r.		$
s.		$

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

Land	Land Improvements	Building
$	$	$

3. Since land used as a plant site ___ does OR does not___ lose its ability to provide services, it ___ is OR is not ___ depreciated. Land improvements ___do OR do not ___

lose their ability to provide services as time passes and are, therefore, ___not depreciated OR depreciated ____

.

4. What would be the effect on the income statement and balance sheet if the cost of filling and grading land of $17,300 [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. Which Letter?

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.