The following payments and receipts are related to land, land improvements, and buildings acquired…

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.

a.

Finder’s fee paid to real estate agency

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$7,500

b.

Cost of real estate acquired as a plant site: Land

$210,000  

Building

50,000

c.

Fee paid to attorney for title search

2,500

d.

Delinquent real estate taxes on property, assumed by purchaser

20,650

e.

Cost of razing and removing building

16,250

f.

Cost of filling and grading land

12,500

g.

Proceeds from sale of salvage materials from old building

5,000*

h.

Architect’s and engineer’s fees for plans and supervision

36,000

i.

Special assessment paid to city for extension of water main to the  

property

8,000

j.

Premium on one-year insurance policy during construction

3,600

k.

Money borrowed to pay building contractor

900,000*

l.

Cost of trees and shrubbery planted

18,000

m.

Cost of repairing windstorm damage during construction

3,000

n.

Cost of repairing vandalism damage during construction

4,200

o.

Cost of paving parking lot to be used by customers

15,000

p.

Proceeds from insurance company for windstorm and vandalism  

damage

7,000*

q.

Interest incurred on building loan during construction

54,000

r.

Payment to building contractor for new building

1,000,000

s.

Refund of premium on insurance policy (j) canceled after 10 months

600*

Instructions

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:

 

 

Land

 

Other

Item

Land

Improvements

Building

Accounts

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.

 

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