Reference no: EM132670144
a. Fee paid to attorney for title search $ 2,500
b. Cost of real estate acquired as a plant site: Land 285,000 Building (to be demolished)55,000
c. Delinquent real estate taxes on property, assumed by purchaser 15,500
d. Cost of tearing down and removing building acquired in (b)5,000
e. Proceeds from sale of salvage materials from old building4,000
f. Special assessment paid to city for extension of water main to the property29,000
g. Architect's and engineer's fees for plans and supervision60,000h.Premium on one-year insurance policy during construction6,000
i. Cost of filling and grading land12,000
j. Money borrowed to pay building contractor900,000 k
Cost of repairing windstorm damage during construction5,500
l. Cost of paving parking lot to be used by customers32,000
m. Cost of trees and shrubbery planted11,000n.Cost of floodlights installed on parking lot2,000
o. Cost of repairing vandalism damage during construction2,500
p. Proceeds from insurance company for windstorm and vandalism damage7,500
q. Payment to building contractor for new building800,000
r. Interest incurred on building loan during construction34,500
s. Refund of premium on insurance policy (h) canceled after 11 months500
Required:
Problem 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.
Problem 2. Determine the amount debited to Land, Land Improvements, and Building.
Problem 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.
Problem 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 $12,000 [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.