The following payments and receipts are related to land, land improvements, and
ID: 2566182 • Letter: T
Question
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 next to the item letter.
What would be the effect on the 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 Land Improvements are depreciated over a 20-year life using the double-declining-balance method.
Allocation to Fixed Asset Accounts
1
Item
Land
Land Improvements
Building
Other Accounts
2
a.
3
b.
4
c.
5
d.
6
e.
7
f.
8
g.
9
h.
10
i.
11
j.
12
k.
13
l.
14
m.
15
n.
16
o.
17
p.
18
q.
19
r.
20
s.
21
Debited amounts
a. Fee paid to attorney for title search $ 2,500 b. Cost of real estate acquired as a plant site: Land 285,000 Cost of real estate acquired as a plant site: Building (to be demolished) 55,000 c. Delinquent real estate taxes on property, assumed by purchaser 15,500 d. Cost of razing and removing building acquired in B 5,000 e.* Proceeds from sale of salvage materials from old building 4,000 f. Special assessment paid to city for extension of water main to the property 29,000 g. Architect’s and engineer’s fees for plans and supervision 60,000 h. Premium on one-year insurance policy during construction 6,000 i. Cost of filling and grading land 12,000 j.* Money borrowed to pay building contractor 900,000 k. Cost of repairing windstorm damage during construction 5,500 l. Cost of paving parking lot to be used by customers 32,000 m. Cost of trees and shrubbery planted 11,000 n. Cost of floodlights installed on parking lot 2,000 o. Cost of repairing vandalism damage during construction 2,500 p.* Proceeds from insurance company for windstorm and vandalism damage 7,500 q. Payment to building contractor for new building 800,000 r. Interest incurred on building loan during construction 34,500 s.* Refund of premium on insurance policy (h) canceled after 11 months 500Explanation / Answer
1 & 2.
* Receipt
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.
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Item Land Land Improvements Building Other Accounts a. 2,500 b. 340,000 c. 15,500 d. 5,000 e. (4,000)* f. 29,000 g. 60,000 h. 6,000 i. 12,000 j. (900,000)* k. 5,500 l. 32,000 m. 11,000 n. 2,000 o. 2,500 p. (7,500)* q. 800,000 r. 34,500 s. (500)* Debited accounts $400,000 $45,000 $900,000Related Questions
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