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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. 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: 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 current year’s income statement and balance sheet if the cost of paving the parking lot of $21,600 [payment (o)] was incorrectly classified as Land rather than Land Improvements? Assume that Land Improvements are depreciated over a 10-year life using the double-declining-balance method.

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Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436
Chapter 10, Problem 1PB
Textbook Problem
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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.

Chapter 10, Problem 1PB, The following payments and receipts are related to land, land improvements, and buildings acquired , example  1

Instructions

  1. 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:

Chapter 10, Problem 1PB, The following payments and receipts are related to land, land improvements, and buildings acquired , example  2

  1. 2. Determine the amount debited to Land, Land Improvements, and Building.
  2. 3. Chapter 10, Problem 1PB, The following payments and receipts are related to land, land improvements, and buildings acquired , example  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.
  3. 4. What would be the effect on the current year’s income statement and balance sheet if the cost of paving the parking lot of $21,600 [payment (o)] was incorrectly classified as Land rather than Land Improvements? Assume that Land Improvements are depreciated over a 10-year life using the double-declining-balance method.

1.

To determine

Identify each item by letter and the list the amounts in columnar form.

Explanation of Solution

Cost of Land: The cost of land includes the following costs:

  • Purchase price of land
  • Attorney fees
  • Real estate agent commission
  • Title
  • Recording fees
  • Additional expenses :
    • Clearing
    • Filling and leveling of land
    • Removing of old buildings

Identify each item by letter and the list the amounts in columnar form.

ItemLand ($)Land Improvements ($)Building ($)Other Accounts ($)
a.3,600   
b.780,000   
c.23,400   
d.15,000   
e.  75,000 
f.10,000   
g.(3,400)   
h.18,000   
i...

2.

To determine

Determine the amount debited to Land, Land Improvements, and Building.

3.

To determine

Explain the contradictory application of the concept of depreciation for Land and Land Improvements.

4.

To determine

Explain the effect on the current year’s income statement and balance sheet due to wrong classification of the cost of filling and grading land.

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Financial Accounting
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