Brady Furniture purchased land, paying $ 95000 cash and signing a $ 270000 note payable. In addition, Brady paid delinquent property tax of $ 1000 , title insurance costing $ 2500 , and $ 6000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of $ 500000. It also paid $ 48000 for a fence around the property, $ 19000 for a sign near the entrance, and $ 5000 for special lighting of the grounds. 1. Determine the cost of the land, land improvements, and building. 2. In which assets will Lawson depreciate?

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Business

Chaz

5 September, 16:08

Brady Furniture purchased land, paying $ 95000 cash and signing a $ 270000 note payable. In addition, Brady paid delinquent property tax of $ 1000 , title insurance costing $ 2500 , and $ 6000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of $ 500000. It also paid $ 48000 for a fence around the property, $ 19000 for a sign near the entrance, and $ 5000 for special lighting of the grounds. 1. Determine the cost of the land, land improvements, and building. 2. In which assets will Lawson depreciate?

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Jennifer Noble · Answer 1

1. Hence, the cost of the land, land improvements, and building is $374,500, $72,000, and $500,000 respectively.

2. On office building and land improvements, the depreciation should be charged

Explanation:

The computation of cost of the land, land improvements, and building is shown below:

1. Cost of land : It includes all cost which is related to the land. It includes purchase cost, notes payable in respect of land, property tax, insurance cost, removal of unwanted building etc.

So cost of land = Purchase cost + notes payable in respect of land + property tax + insurance cost + removal of unwanted building

= $95,000 + $270,000 + $1,000 + $2,500 + $6,000

=$374,500

Hence, the cost of land is $374,500

Cost of land improvements : It include those costs which improve the land so that people can easily reach to the destination. Cost such as fencing cost, entrance sign, special lighting, etc.

So cost of land improvements = Fencing cost + entrance sign + special lighting

= $48,000 + $19,000 + $5,000

= $72,000

Hence, the cost of land is $72,000

Cost of building : The cost of building includes that cost which is related to the building such as purchase cost appliances, doors, windows, etc.

So, cost of building = Construction cost = $500,000

Hence, cost of building is $500,000

2. Since the depreciation should be charged on office building, and land improvements not on land as land is not depreciated because it have unlimited life.

Hence, on office building and land improvements, the depreciation should be charged.