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 $ 2,480 b. Cost of real estate acquired as a plant site: Land 273,700 Building (to be demolished) 51,500 C. Delinquent real estate taxes on property, assumed by purchaser 16,570 d Cost of tearing down and removing building acquired in (b) 5,495 e.* Proceeds from sale of salvage materials from old building 4,070 f. Special assessment paid to city for extension of water main to the property 29,005 g. Architect's and engineer's fees for plans and supervision 57,780 h. Premium on one-year insurance policy during construction 5,760 i. 10,910 Cost of filling and grading land Money borrowed to pay building contractor j. 941,000 k. 5,910 1. 30,280 m. 10,120 1,995 n. 0. Cost of repairing windstorm damage during construction Cost of paving parking lot to be used by customers 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 2,325 p.* 7,105 q. 852,000 r. 31,290 S.* 480 Required: 1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts in the table provided. Enter receipts as negative amounts using the minus sign. 2. Determine the amount debited to Land, Land Improvements, and Building. 3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation. 4. What would be the effect on the current year's income statement and balance sheet if the cost of filling and grading land of $10,910 (payment (0)] 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. 1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts in the table provided. Enter receipts as negative amounts using the minus sign. 2. Determine the amount debited to Land, Land Improvements, and Building. Allocation to Fixed Asset Accounts 1 Item Land Land Improvements Building Other Accounts 2 a. 3 b. 4 C. 5 d. 6 e. 7 f. 8 9. 9 h. 10 i. 11 j. 12 k. 13 L 14 m. 15 n. 16 0. 17 p. 18 9. 19 r. 20 S. 21 Debited amounts 3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation. Since land used as a plant site lose its ability to provide services, it depreciated. Land improvements lose their ability to provide services as time passes and are therefore 4. What would be the effect on the current year's income statement and balance sheet if the cost of filling and grading land of $10,910 (payment ()] 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. The effect would be that: Depreciation expense would be understated & Land improvements would be understated. O Land Improvements would be overstated & Depreciation expense would be understated. Retained Earnings would be understated & Net income would be understated. O Land Improvements would be overstated & Depreciation expense would be overstated
