What impact does the classification of the items among


Krall Company was formed on January 1, 2014, and began constructing a new plant. At the end of 2014, its auditor discovered that all expenditures involving long-term assets had been debited to an account called Fixed Assets. An analysis of the Fixed Assets account, which had a year-end balance of $2,644,972, disclosed that it contained the following items:

 

Cost of land

$ 316,600

Surveying costs

4,100

Transfer of title and other fees required by the county

920

Broker's fees for land

21,144

Attorney's fees associated with land acquisition

7,048

Cost of removing timber from land

50,400

Cost of grading land

4,200

Cost of digging building foundation

34,600

Architect's fee for building and land improvements (80 percent building)

64,800

Cost of building construction

710,000

Cost of sidewalks

11,400

Cost of parking lots

54,400

Cost of lighting for grounds

80,300

Cost of landscaping

11,800

Cost of machinery

989,000

Shipping cost on machinery

55,300

Cost of installing machinery

176,200

Cost of testing machinery

22,100

Cost of changes in building to comply with safety

 

regulations pertaining to machinery

12,540

Cost of repairing building that was damaged in the

 

installation of machinery

8,900

Cost of medical bill for injury received by

 

employee while installing machinery

2,400

Cost of water damage to building during heavy

 

rains prior to opening the plant for operation

6,820

Account balance

$2,644,972

Krall sold the timber it cleared from the land to a firewood dealer for $5,000. This amount was credited to Miscellaneous Income. During the construction period, two of Krall's supervisors devoted full time to the construction project. Their annual salaries were $48,000 and $42,000, respectively. They spent two months on the purchase and preparation of the land, six months on the construction of the building (approximately one-sixth of which was devoted to improvements on the grounds), and one month on machinery installation. When the plant began operation on October 1, the supervisors returned to their regular duties. Their salaries were debited to Factory Salaries Expense.

REQUIRED

1. Prepare a schedule with the following column headings: Land, Land Improvements, Buildings, Machinery, and Expense. Place each of the above expenditures in the appropriate column. Negative amounts should be shown in parentheses. Total the columns.

2. Concept- What impact does the classification of the items among several accounts have on evaluating the profitability performance of the company?

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Financial Accounting: What impact does the classification of the items among
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