Question

(Acquisition Costs of Realty) The following expenditures and receipts are related to land, land improvements,

and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses.

(a) Money borrowed to pay building contractor (signed a note) \((275,000)

(b) Payment for construction from note proceeds 275,000

(c) Cost of land fill and clearing 8,000

(d) Delinquent real estate taxes on property assumed by purchaser 7,000

(e) Premium on 6-month insurance policy during construction 6,000

(f) Refund of 1-month insurance premium because construction completed early (1,000)

(g) Architect’s fee on building 22,000

(h) Cost of real estate purchased as a plant site (land \)200,000 and building $50,000) 250,000

(i) Commission fee paid to real estate agency 9,000

(j) Installation of fences around property 4,000

(k) Cost of razing and removing building 11,000

(l) Proceeds from salvage of demolished building (5,000)

(m) Interest paid during construction on money borrowed for construction 13,000

(n) Cost of parking lots and driveways 19,000

(o) Cost of trees and shrubbery planted (permanent in nature) 14,000

(p) Excavation costs for new building 3,000

Instructions

Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should be

reported in parentheses. For any amounts entered in the Other Accounts column, also indicate the account title.

Item Land Land Improvements Buildings Other Accounts

Short answer

(c), (d), (h), (i), (k), (l), (m), and (o) items are shown in land. (j) and (n) items shown in land improvement. (b), (e), (f), (g) and (p) items shown in building. (a) item shown in other account as note payable.

Step-by-step solution

Definition of fixed assets

Fixed assets are those assets which are converted into cash after the period of the 12 months or after the completion of the operating cycle of the company.

Table showing the classification of the items

	Item	Land	Land improvement	Building	Other account
(a)	Borrowed amount to pay contractor				-$275,000 (Notes payable)
(b)	Payment from note proceeds			$275,000
(c)	Fill and clearing cost	$8,000
(d)	Real estate taxes	$7,000
(e)	Premium on insurance			$6,000
(f)	Refund of insurance premium			-$1,000
(g)	Architect fees			$22,000
(h)	Real estate purchasing cost	$250,000
(i)	Commission fee	$9,000
(j)	Fence installation		$4,000
(k)	Building removing cost	$11,000
(l)	Salvage value of building	-$5,000
(m)	Interest paid	$13,000
(n)	Parking cost		$19,000
(o)	Trees cost	$14,000
(p)	Excavation cost			$3,000