Question

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price $ 189,000 Real estate commissions 16,400 Legal fees 2,200 Expenses of clearing the land 3,400 Expenses to remove old building 2,400 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? .
a. $207,600 to Land; $2,400 to Building.
b. $205,400 to Land; $8,000 to Building.
c. $211,000 to Land; $0 to Building.
d. $213,400 to Land; $0 to Building.
e. $191,200 to Land; $24,400 to Building.

Answer 1

Answer:

$213,400 and zero

Explanation:

The computation is shown below:

Cost of the land would be

= Purchase price +  Real estate commissions + Legal fees + Expenses of clearing the land + Expenses to remove old building

= $189,000 + $16,400 + $2,200 + $3,400 + $2,400

= $213,400

Since the property is purchase for building site construction so no cost would be recorded in the cost of the new building