Question

Use the following information for questions 2, 3, and 4.

Automated Audit Company Co. (AACC) purchased land as a factory site for $1,700,000. AACC paid $250,000 to tear down two buildings on the land. Salvage was sold for $3,800. Legal fees of $150,550 were paid for title investigation and making the purchase. An assessment made by the city for underground water and sewage systems was made for $135,000. Architect's fees for the building were $25,800. The contractor was paid a total of $4,250,500. Liability insurance during construction cost $29,500. AACC expects the building to have a useful life of 25 years. Finally, AACC paid $15,300 to pave and fence in the parking lot, which it expects to have a useful life of 7 years.

    2.     The cost of the land that should be recorded by AACC is

a.   $1,981,750.

b.   $2,096,750.

c.   $2,231,750

d.   $1,063,180.

    3.     What should one full year of depreciation expense for the land be using straight-line, assuming no expected salvage value?

a.   $0.

b.   $83,870.

c.   $89,270.

d.   $89,422.

    4.     What should one full year of depreciation expense for the building be using straight-line, assuming no expected salvage value?

a.   $171,052.00

b.   $172,232.00

c.   $182,232.00

d.   $177,212.00

Answer 1

	Land	Building	Land Improvements
Purchase price	1700000
Demolition cost of buildings	250000
Salvage	-3800
Legal fees for title investigation and purchase	150550
Paid to city for assessment of underground water and sewage systems	135000
Architect's fees for building		25800
Payment to building contractor		4250500
Liability insurance during construction		29500
Cost of paving and fencing parking lot			15300
Total cost $	2231750	4305800	15300

2. Answer: c. $2,231,750

3. Answer: a. $0

Since no depreciation expense is recorded for land.

4. Answer: b. $172,232.00

Annual depreciation expense for building = $4305800/25 years = $172232