Question

.Grannis Corporation purchased land in order to construct a new factory . Expenditures incurred by the company were as follows: purchase price, $45,000;broker's fees, $8,000; accrued real estate taxes, $2,000; demolition of an old building on the property, $2,700; grading, $1,500; excavation costs for the building, $2,000; paving the parking lot, $15,000; lighting in the parking lot, $5,000. What is the amount that should be recorded in the Land account?

Answer 1

Answer:

The amount recorded in the Land account is $61,200    

Explanation:

The cost of acquisition/purchase of a landed asset includes all the normal, reasonable and necessary costs incurred in obtaining the land and getting it ready for use. These cost includes the price of the land, the legal fees, title fees, taxes, excavation costs etc. On the other hand, cost of improvements on the land are recorded on improvement on asset accounts, where depreciation is put in consideration when computing cost. This is separate from acquisition cost because, there is no depreciation on a land. The cost is calculated as follows:

purchase price = $ 45,000

broker's fees    = $   8,000

accrued taxes  = $    2,000

demolition        = $    2,700

grading             = $    1,500

excavation       =  $    2,000

Total                 =  $ 61,200