Answer:
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
Step-by-step 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.