Question

Desert Company purchased land to be used as a factory site for $1,350,000. Desert paid $100,000 to tear down two buildings on the land. Salvage was sold for $8,500. Legal fees of $5,250 were paid for title investigation and making the land purchase. Architect’s fees were $46,600. Title insurance cost $3,600 and liability insurance during construction cost $3,900. Excavation cost $16,720. The contractor was paid $4,200,000. Landscaping cost $9,800. Interest costs during construction were $225,000. What is the historical cost of the land that should be recorded by Desert, Co.?

Answer 1

Answer:

Desert Company

Historical cost of Land:

Purchase price = $1,350,000

Tearing down Buildings = $91,500 $(100,000 - 8,500)

Title Investigation = $5,250

Title Insurance = $3,600

Total = $1,450,350

Explanation:

The historical cost of land is the initial price paid to purchase the land and any other costs incurred in order to put the land to use, except building costs.

The other costs, including Architect's fee, Liability Insurance during construction, excavation cost, contractor fee, and landscaping cost are costs incurred for the building and not for the land.

Answer 2

Answer:

historical cost is $1,460,150

Explanation:

Computation of Cost of Land  

Cost                                           $1,350,000

Tear down                                      $100,000

Salvage                                                 -$8,500

Legal fees                                          $5,250

Title insurance                                  $3,600

pavement                                         $9,800

Total                                             $1,460,150