13. Ayer Furniture Co. purchased land, paying $95,000 cash plus a $270,000 note

Question

13. Ayer Furniture Co. purchased land, paying $95,000 cash plus a $270,000 note payable. In addition, Ayer paid delinquent property tax of $2,000, title insurance costing $2,500, and $3,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of $550,000. It also paid $52,000 for a fence around the property, $17,000 for a sign near the entrance, and $4,000 for special lighting of the grounds. Requirements R1. Determine the cost of the land, land improvements, and building. R2. Which of these assets will Ayer depreciate?

Explanation / Answer

Solution:

Cost of Land will include the following:

1.Cash paid: $95,000

2.Note Payable:$2,70,000

3.Delinquent property tax:$2,000

4.Title Insurance :$2,500

5.Cost of levelling land: $3,000

Therefore, cost of land is $3,72,500

Cost of Building is $5,50,000

Cost of Land improvements include:

1.Cost of fencing: $52,000

2,Cost of Sign board:$17,000

3.Cost of lighting:$4,000

Therefore,cost of land improvements is $73,000

Ayer will depreciate cost of building and cost of land improvements/

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