Question

Determining asset cost and recording partial-year depreciation, straight-line Discount Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:

a. Purchase price of three acres of land $ 80,000

b. Delinquent real estate taxes on the land to be paid by Discount Parking 6,300

c. Additional dirt and earthmoving 9,000

d. Title insurance on the land acquisition 3,200

e. Fence around the boundary of the property 9,600

f. Building permits for the building 1,000

g. Architect’s fee for the design of the building 20,700

h. Signs near the front of the property 9,300

i. Materials used to construct the building 215,000

j. Labor to construct the building 175,000

k. Interest cost on the construction loan for the building 9,400

l. Parking lots on the property 28,500

m. Lights for the parking lots 11,200

n. Salary of construction supervisor (80% to building; 20% to parking lot and concrete walks) 50,000

o. Furniture 11,200

p. Transportation of furniture from seller to the building 2,200

q. Additional fencing 6,600

Discount Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value’s

Requirements

1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset.

2. All construction was complete and the assets were placed in service on October 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar

Short answer

Answer

Total Value of Cost of land = $98,500

Total Value of Land Improvements = $75,200

Total Value of Building = $461,100

Total Value of Furniture = $13,400

Step-by-step solution

Definition of Depreciation

The expenses charged to report the decline in the company's fixed assets value are known as depreciation expenses.

Calculation of total cost for each asset

Cost of land:

Particulars	Amount $
Purchase price of three acres of land	$80,000
Delinquent real estate taxes on the land to be paid by discount parking	6,300
Additional dirt and earthmoving	9,000
Title insurance on the land acquisition	3,200
Total cost of land	$98,500

Cost of land improvements:

Particulars	Amount $
Fencing around land	$9,600
Sign near the front of the property	9,300
Parking lot	28,500
Lights for parking lot	11,200
Salary of construction supervisor	10,000
Additional fencing	6,600
Total cost of land improvement	$75,200

Cost of building:

Particulars	Amount $
Building permit for building	$1,000
Architect fees	20,700
Material to construct building	215,000
Labor to construct building	175,000
Interest cost on construction loan	9,400
Salary of construction supervisor	40,000
Total cost of building	$461,100

Cost of furniture:

Particulars	Amount $
Furniture	$11,200
Transportation cost of furniture	2,200
Total cost of furniture	$13,400

Calculation of Partial Year Depreciation Expense for year Ended 31st Dec

Date	Accounts and Explanation	Debit ($)	Credit ($)
31 Dec	Depreciation expenses – Land improvement	1,254
	Accumulated depreciation – Land improvement		1,254
31 Dec	Depreciation expenses – Building	2,882
	Accumulated depreciation – Building		2,882
31 Dec	Depreciation expenses – Furniture	335
	Accumulated depreciation – Furniture		335

Working note:

$$\begin{gathered} Depreciationonlandimprovement=\frac{TotalCost}{Usefullife}\times \frac{3}{12} \\ =\frac{\$75,2000}{15}\times \frac{3}{12} \\ =\$1,254 \end{gathered}$$
$$\begin{gathered} Depreciationofbuilding=\frac{TotalCost}{Usefullife}\times \frac{3}{12} \\ =\frac{\$461,100}{40}\times \frac{3}{12} \\ =\$2,882 \end{gathered}$$

$$\begin{gathered} Depreciationonfurniture=\frac{TotalCost}{Usefullife}\times \frac{3}{12} \\ =\frac{\$13,400}{10}\times \frac{3}{12} \\ =\$335 \end{gathered}$$