Question

The following expenditures are related to land, land improvements and buildings, which were acquired on November 1, 2015.

Cost of real estate acquired for a new manufacturing plant S365,000 (the land is appraised for $262,800 and the building for $102,200)

Real estate taxes paid by the purchaser......$20,000

Cost of removing a barn..... $8,500

Architect's fees for updating the building..... $6750

Attorneys fees for closing the sale..... $12500

Grading land.... $3500

paving parking lot......$7000

Planting trees and shrubs.......$9250

Cost of repairs to building due to storm during construction..... $1300

lights placed on driveway .... $750

fee to real estate broker..... $2500

a) determine the cost of the land, the building and the improvements (round to nearest dollar)

b)prepare journal entries on Dec. 31, 2015 for depreciation assuming the building will have a useful life of 20 years and no residual value. Use double declining balance method and the half-year convention. Depreciate the land improvements using straight line method, a 5 year life, to the nearest month with zero residual value (to the nearest dollar).

Answer 1

a) determination of the costs:
Cost head	land	building	land improvement	Total
Cost of real estate	262800	102200		365000	(ratio=2.57:1)
Real estate taxes	14398	5602		20000	(ratio=2.57:1)
Barn removing cost			8500	8500
Building architect's fees		6750		6750
Attorneys fees	8999	3501		12500	(ratio=2.57:1)
Grading land			3500	3500
paving parking lot		7000		7000
Planting trees and shrubs			9250	9250
Building repairs		1300		1300
Driveway lights			750	750
Estate broker fee	1800	700		2500	(ratio=2.57:1)
Total	287996	127054	22000	437050

b) Journal Entries:
Date	Acc. Titles	Debit $	Credit $
31-Dec-15	Depreciation - Building	2118		(127054*5%*2*2/12)
	Depreciation - Land Development	733		(22000*20%*2/12)
	Accum. Depreciation - Building		2118
	Accum. Depreciation - Land Development		733
	(depreciation expense recorded on building & Development)