Accounting (Text Only)
26th Edition
ISBN: 9781285743615
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 10, Problem 10.1APR
Allocating payments and receipts to fixed asset accounts
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.
| a. Fee paid to attorney for title search | $ 2,500 |
| b. Cost of real estate acquired as a plant site: Land | 285,000 |
| Building (to be demolished) | 55,000 |
| c. Delinquent real estate taxes on property, assumed by purchaser | 15,500 |
| d. Cost of tearing down 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 |
| 1. 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 | 500* |
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:
| Item | Land | Land improvements | Building | Other 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
4. What would be the effect on the current year’s 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 that Land Improvements are depreciated over a 20-year life using the double-declining-balance method.
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Chapter 10 Solutions
Accounting (Text Only)
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- Allocating payments and receipts to fixed asset accounts 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. Fee paid to attorney for title search............................................ 3,600 B. Cost of real estate acquired as a plant site: Land................................ 720,000 Building (to be demolished)........... 60,000 C. Finder's fee paid to real estate agency.......................................... 23,400 D. Delinquent real estate taxes on property, assumed by purchaser................. 15,000 E. Architect's and engineer's fees for plans for new building....................... 75,000 F. Cost of removing building purchased with land in (B)............................ 10,000 G. Proceeds from sale of salvage materials from old building....................... 3,400 H. Cost of filling and grading land................................................ 18,000 1. Premium on one-year insurance policy during construction...................... 8,400 J. Money borrowed to pay building contractor.................................... 800,000 K. Special assessment paid to city for extension of water main to the property....... 13,400 L. Cost of repairing windstorm damage during construction....................... 3,000 M. Cost of repairing vandalism damage during construction........................ 2,000 N. Cost of trees and shrubbery planted........................................... 14,000 0. Cost of paving parking lot to be used by customers............................. 21,600 P. Interest incurred on building loan during construction.......................... 40,000 Q. Proceeds from insurance company for windstorm and vandalism damage........ 4,500 R. Payment to building contractor for new building................................ 800,000 S. Refund of premium on insurance policy (1) canceled after 10 months............. 1,400 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: Item Land Land Improvements Building Other 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. 4. What would be the effect on the income statement and balance sheet if the cost of paving the parking lot of 21,600 [payment (0)] was incorrectly classified as Land rather than Land Improvements? Assume Land Improvements are depreciated over a 10-year life using the double-declining-balance method.arrow_forwardInclusion in Property, Plant, and Equipment Guthrie Inc. must determine whether the following items are included in property, plant, and equipment: a. idle equipment awaiting sale b. machinery kept on hand and used only when other machinery breaks c. land held for investment d. the right to publish a literary work e. progress payments on a building being constructed by a contractor f. fully depredated assets still being used g. expenditures to improve leased property h. equipment leased to others i. purchase of an asset with an expected life of 9 months j. obligation to remove leasehold improvement at the termination of a lease Required: 1. Indicate which items are included in the cost of property, plant, and equipment and which items are excluded from the cost of property, plant, and equipment. 2. Next Level For each item excluded from property, plant, and equipment, explain why it was excluded.arrow_forwardCosts to Be Included in Historical Cost Valuation. At a cost of 200,000, Assume In-N-Out Burger acquired a tract of land for a restaurant site. It paid attorneys 7,500 to conduct a title search and to prepare the required legal documents for the purchase. State real estate transfer taxes totaled 2,500. Building permits totaled 1,200. Compute the acquisition cost of the land.arrow_forward
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