Question

In: Accounting

Allocating Payments and Receipts to Fixed Asset Accounts The following payments and receipts are related to...

Allocating Payments and Receipts to Fixed Asset Accounts

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 $3,600
b. Cost of real estate acquired as a plant site: Land 374,900
                                                                 Building (to be demolished) 35,600
c. Delinquent real estate taxes on property, assumed by purchaser 21,100
d. Cost of razing and removing building acquired in B 5,900
e. Proceeds from sale of salvage materials from old building 3,500*
f. Special assessment paid to city for extension of water main to the property 14,100
g. Architect’s and engineer’s fees for plans and supervision 51,600
h. Premium on one-year insurance policy during construction 5,000
i. Cost of filling and grading land 20,600
j. Money borrowed to pay building contractor 879,200*
k. Cost of repairing windstorm damage during construction 6,500
l. Cost of paving parking lot to be used by customers 17,800
m. Cost of trees and shrubbery planted 10,600
n. Cost of floodlights installed on parking lot 1,200
o. Cost of repairing vandalism damage during construction 2,900
p. Proceeds from insurance company for windstorm and vandalism damage 7,000*
q. Payment to building contractor for new building 937,300
r. Interest incurred on building loan during construction 44,100
s.

Refund of premium on insurance policy (h) canceled after 11 months

Required:

1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Choose the correct account from the dropdown list for each letter and enter the appropriate amount. Enter receipts as negative amounts using the minus sign.

Item Account Amount
a. $
b. $
c. $
d. $
e. $
f. $
g. $
h. $
i. $
j. $
k. $
l. $
m. $
n. $
o. $
p. $
q. $
r. $
s. $

2. Determine the amount debited to Land, Land Improvements, and Building.

Land Land Improvements Building
$ $ $

3. 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 $20,600 [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.

417*

Solutions

Expert Solution

1)

Item Land Land Improvements Buildings Other Accounts
a. 3600
b. 410500
c. 21100
d. 5900
e. -3500
f. 14100
g. 51600
h. 5000
i. 20600
j. -879200
k. 6500
l. 17800
m. 10600
n. 1200
o. 2900
p. -7000
q. 937300
r. 44100
s. -417
Total 472300 29600 1037583 -876800

2)Debit Totals

Land Land Improvements Buildings
472300 29600 1037583

3)Since land used as a plant site does not lose its ability to provide services, it is not depreciated. However, land improvements do lose their ability to provide services as time passes and are therefore depreciated.

4)The effect on the income statement and balance sheet if the cost of filling and grading land of $20,600[payment (i)] was incorrectly classified as Land Improvements rather than Land? Assume Land Improvements are depreciatedover a 20­year life using the double­declining­balance method.
Land improvements would be overstated


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