Reference no: EM131715402
Question - 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 income statement and balance sheet if the cost of filling and grading land of $11,410 [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. The effect would be that:
Depreciation expense would be understated & Land improvements would be understated. Land Improvements would be overstated & Depreciation expense would be understated. Depreciation expense would be overstated & Land would be overstated. Retained Earnings would be understated & Net income would be understated. Land would be overstated & Depreciation expense would be overstated.
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 next to the item letter.
a. Fee paid to attorney for title search $ 2,265
b. Cost of real estate acquired as a plant site: Land - 281,200 And Cost of real estate acquired as a plant site: Building 52,200
c. Delinquent real estate taxes on property, assumed by purchaser 16,180
d. Cost of razing and removing building acquired in B 5,365
e.* Proceeds from sale of salvage materials from old building 4,400
f. Special assessment paid to city for extension of water main to the property 30,425
g. Architect's and engineer's fees for plans and supervision 55,410
h. Premium on one-year insurance policy during construction 6,240
i. Cost of filling and grading land 11,410
j.* Money borrowed to pay building contractor 815,000
k. Cost of repairing windstorm damage during construction 5,600
l. Cost of paving parking lot to be used by customers 32,540
m. Cost of trees and shrubbery planted 10,250
n. Cost of floodlights installed on parking lot 1,915
o. Cost of repairing vandalism damage during construction 2,310
p.* Proceeds from insurance company for windstorm and vandalism damage 8,235
q. Payment to building contractor for new building 845,000
r. Interest incurred on building loan during construction 35,980
s.* Refund of premium on insurance policy (h) canceled after 11 months 550
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 income statement and balance sheet if the cost of filling and grading land of $11,410 [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.
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.