Question

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price $ 194,000 Real estate commissions 16,900 Legal fees 2,700 Expenses of clearing the land 3,900 Expenses to remove old building 2,900 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?

Answer 1

Answer:

Cost of land = $220,400

Cost of building = $0

Explanation:

The computation of the land and the cost of the new building is shown below:

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

= $194,000 + $16,900 + $2,700 + $3,900 + $2,900

= $220,400

The cost of the new building would be zero as all the costs are allocated to the cost of the land. So, no cost is allocated to the cost of the new building