Question

Pollachek Co. purchased land as a factory site for $430000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $48000 to raze the old buildings and sold salvaged lumber and brick for $6800. Legal fees of $2050 were paid for title investigation and drawing the purchase contract. Pollachek paid $2100 to an engineering firm for a land survey, and $64000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1400, and a liability insurance premium paid during construction was $700. The contractor’s charge for construction was $2810000. The company paid the contractor in two installments: $1200000 at the end of 3 months and $1610000 upon completion. Interest costs of $220000 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building.

Answer 1

Solution and Explanation:

Land = 430000 + 48000 - 6800 + 2050 + 1400 = $474650

Building = 2100 + 64000 + 700 + 1200000 + 1610000 + 220000 = $3096800

In the land, cost of land has been included and along with amount to raze old building is included. salvage value is subtracted and legal fees is included and insurance on property cost is also included in the calculation of land.

In the calculation of building, land survey fees is included, drawing of factory plans is included, insurance premium fess is included, instalments amounts is included and interest cost is also included.