The Following Expenditures Are Related to Land, Land Improvements and Buildings

question 128

Essay

The following expenditures are related to land, land improvements and buildings which were acquired on 1 November 2009. $$\begin{array} { | l | r | } \hline \text { Cost of real estate acquired for a new manufacturing plant } & \$ 365,000 \\\hline { \text { The land is appraised for } \$ 262,800 \text { and the building for } \$ 102,200 . } & \\\hline \text { Real estate taxes paid by the purchaser } & \$ 20,000 \\\hline \text { Cost of removing a barn } & \$ 8,500 \\\hline \text { Architect's fees for updating building } & \$ 6,750 \\\hline \text { Attorney's fees for closing sale } & \$ 12,500 \\\hline \text { Grading land } & \$ 3,500 \\\hline \text { Paving parking lot } & \$ 7,000 \\\hline \text { Planting trees and shrubs } & \$ 9,250 \\\hline \text { cost of repairs to building due to storm during construction } & \$ 1,300 \\\hline \text { Lights placed on driveway } & 4750 \\\hline \text { Fee to real estate broker } & \$ 2,500 \\\hline & \\\hline\end{array}$$ Required:
Determine the cost of the land, the building and the improvements (Round to the nearest dollar)
Prepare journal entries on 31 December 2009 for depreciation assuming the building will have a useful life of 20 years and no residual value. Use double declining balance method and the half-year convention. Depreciate the land improvements using straight-line method, a 5 year life, to the nearest month with zero residual value (to the nearest dollar).

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Definitions:

Net Present Value

A calculation used to determine the present value of a series of future cash flows minus the initial investment, often used in capital budgeting.

Return on Investment

A financial metric used to evaluate the efficiency of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Present Value of An Annuity

The current worth of a series of future payments or receipts, discounted at a specific interest rate.

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account to analyze the profitability of investments.