Discount Parking, near an airport, incurred the following costs to acquire land,

Question

Discount Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building: $80,000 a. Purchase price of three acres of land b. Delinquent real estate taxes on the land to be paid by Discount Parking c. Additional dirt and earthmoving d. Title insurance on the land acquisition e. Fence around the boundary of the property f. Building permit for the building g. Architect's fee for the design of the building h. Signs near the front of the property i. Materials used to construct the building j. Labor to construct the building k. Interest cost on construction loan for the building I. Parking lots on the property m. Lights for the parking lots n. Salary of construction supervisor (80% to building; 20% to parking lot 6,300 9,000 3,200 9,600 1,000 20,700 9,300 215,000 175,000 9,400 28,500 11,200 50,000 and concrete walks) o. Furniture 11,200 2,200 6,600 p. Transportation of furniture from seller to the building q. Additional fencing Discount Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value.

Explanation / Answer

1) Calculation of total cost of each asset (Amounts in $)

2) Calculation of partial year depreciation expense for year ended Dec 31

Depreciation on Land improvements = (Total cost/15 years)*3 months/12 months

= ($75,200/15 yrs)*3/12 = $1,253

Depreciation on Building = (Total cost/40 yrs)*3 months/12 months

= ($461,100/40 yrs)*3/12 = $2,882

Depreciation on Furniture = (Total cost/10 yrs)*3 months/12 months

= ($13,400/10 yrs)*3/12 = $335

Particulars Land Land Improvements Building Furniture Purchase price 80,000 Real estate taxes 6,300 Dirt and earthmoving 9,000 Title Insurance 3,200 Fence 9,600 Building permit 1,000 Architect's Fees 20,700 Signs 9,300 Building materials 215,000 Building labor 175,000 Interest on construction loan 9,400 Parking lots 28,500 Lights for parking lots 11,200 Salary of construction supervisor (20%:80%) 10,000 40,000 Furniture 11,200 Transportation of furniture 2,200 Additional fencing 6,600 Total 98,500 75,200 461,100 13,400

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