The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk.
Finder’s fee paid to real estate agency
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Cost of real estate acquired as a plant site: Land
Fee paid to attorney for title search
Delinquent real estate taxes on property, assumed by purchaser
Cost of razing and removing building
Cost of filling and grading land
Proceeds from sale of salvage materials from old building
Architect’s and engineer’s fees for plans and supervision
Special assessment paid to city for extension of water main to the
Premium on one-year insurance policy during construction
Money borrowed to pay building contractor
Cost of trees and shrubbery planted
Cost of repairing windstorm damage during construction
Cost of repairing vandalism damage during construction
Cost of paving parking lot to be used by customers
Proceeds from insurance company for windstorm and vandalism
Interest incurred on building loan during construction
Payment to building contractor for new building
Refund of premium on insurance policy (j) canceled after 10 months
1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows:
2. Determine the amount debited to Land, Land Improvements, and Building.
3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation.