The following payments and receipts are related to land, land improvements, and building acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk.
A) Fee paid to attorney for title search……..$3,000
B) Cost of real estate acquired as a plant site: Land…….$325,000
&nbs p; Building….75,000

C) Delinquent real estate taxes on property, assumed by purchaser……..$10,000
D) Special assessment paid to city for extension of water main to the property…12,800
E) Cost of razing and removing building………….3,900
F) Proceeds from sale of salvage materials from old building………$4,000*
G) Cost of filling and grading land………17,500
H) Architect’s and engineer’s fees for plans and supervision……….40,000
I) Premium on one-year insurance policy during construction…….4,800

K)Money borrowed to pay building contractor……..800,000
L)Cost of paving parking lot to be used by customers……..15,000
M)Cost of repairing windstorm damage during construction…2,000
N)Cost of repairing vandalism damage during construction….2,500
O)Cost of floodlights installed on parking lot……………1,100
P)Interest incurred on building loan during construction………….42,000
Q)Payment to building contractor for new building……………..915,000
R)Proceeds from insurances company for windstorm and vandalism damage…4,000*
S)Refund of premium on insurance policy (i) canceled after 11 months…..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 Buildings Other Accounts

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


3)The cost 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.

1.

Land Other

Item Land Improvements Building Accounts

a. $ 3,000

b. 400,000

c. 10,000

d. 12,800

e. 3,900

f. (4,000)*

g. 17,500

h. $ 40,000

i. 4,800

j. $ 9,000

k. $(800,000)*

l. 15,000

m. 2,000

n. 2,500

o. 1,100

p. 42,000

q. 915,000

r. (4,000)*

s. (400)*

2. $443,200 $ 25,100 $1,001,400

*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.