Question

Lawson Furniture purchased land, paying $65,000 cash and signing a $250,000 note payable. In addition, Lawson paid delinquent property tax of $5,000, title insurance costing $4,000, and $9,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of $400,000. It also paid $54,000 for a fence around the property, $12,000 for a sign near the entrance, and $8,000 for special lighting of the grounds.

Requirements 1. Determine the cost of the land, land improvements, and building. 2. Which of these assets will Lawson depreciate?

Answer 1

(a) Cost of the land= $333,000

(b) Cost of land improvement= $74,000

(c) Construction cost of new building = $400,000

(2) Building and land improvement assets

Step-by-step explanation:

Lawson furniture carried out the following transactions when they were about to open up a new office

Cash used to purchase land= $65,000

Note payable= $250,000

Property tax= $5,000

Title insurance= $4,000

Amount used to level the land= $9,000

Amount used to construct the new office building= $400,000

Cost of fence= $54,000

Cost of the sign near the entrance= $12,000

Special lighting cost= $8,000

(a) The cost of the land can be calculated by adding up the following

Notes payable+Cash paid+Title insurance+Property tax+ Amount used to level the land

$250,000+$65,000+$4,000+$5,000+$9,000

= $333,000

Cost of the land= $333,000

(b) The cost of land improvement can be calculated by adding the following

Special lighting+ Fence cost+ Cost of sign entrance

$8,000+ $54,000+$12,000

= $74,000

The cost of the land improvement is $74,000

(c) The amount used for the construction of the new office building is $400,000

(2) Lawson will depreciate the building and land improvement assets because they tend to lose their value over a period of time.