Question

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price$185,000 Real estate commissions 15,000 Legal fees 700 Expenses of clearing the land 2,000 Expenses to remove old building 4,000 What portion of these costs should be allocated to the cost of the land?

Answer 1

Answer:

$206700.

Explanation:

Given: Purchase price= $185000.

           Real estate commissions= $15000.

            Legal fees= $700.

            Expense of clearing land= $2000.

            Expense to remove old building= $4000.

Now, calculating the expense allocated to the cost of land.

As given property is purchsed for a building site and expense are to clear land for new building.

⇒ Expense allocated to the cost of land= $Purchase\ price+ Commissions+ Legal\ fees+ Expense\ of\ clearing\ land+ expense\ to\ remove\ old\ building$

⇒ Expense allocated to the cost of land= $\ 185000+\ 15000+\ 700+\ 2000+\ 4000$

∴ Expense allocated to the cost of land=  $206700.

Hence, $206700 should be allocated to the cost of the land.