Business, 07.06.2021 14:00 DessAnnette2751

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.
$
2,500
285,000
55,000
15,500
5,000
4,000*
29,000
60,000
6,000
12,000
A. Fee paid to attorney for title search
B. Cost of real estate acquired as a plant site:Land...
Building (to be demolished)..
C. Delinquent real estate taxes on property, assumed by purchaser.
D. Cost of razing and removing building acquired in B
E. Proceeds from sale of salvage materials from old building
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
H. Premium on one-year insurance policy during construction...
1. Cost of filling and grading land.
J. Money borrowed to pay building contractor.
K. Cost of repairing windstorm damage during construction
L. Cost of paving parking lot to be used by customers
M. Cost of trees and shrubbery planted
N. Cost of floodlights installed on parking lot.
0. Cost of repairing vandalism damage during construction..
P. Proceeds from insurance company for windstorm and vandalism damage
Q. Payment to building contractor for new building...
R. Interest incurred on building loan during construction
S. Refund of premium on insurance policy (H) canceled after 11 months
900,000"
5,500
32,000
11,000
2,000
2,500
7,500
800,000
34,500
500*
Instructions
1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life),
Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter
and list the amounts in columnar form, as follows:
Item
Land
Improvements
Other
Accounts
Land
Building
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 depre-
ciated, 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 income statement and balance sheet if the cost of filling
and grading land of $12,000 (payment (1)] 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.

Answers: 2

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