Question

Jones Corporation purchases a piece of land for $300,000. Jones Corp. paid $3,000 in brokerage commissions, $10,000 to clear and remove an unwanted building, $5,000 for building permits to construct a new building, S500,000 to construct a new building and $5,000 in delinquent property taxes. $515,000 $505,000 What is the amount to be capitalized (debited) to the Building account?

Answer 1

Answer:

$505,000

Explanation:

Cost of asset includes all the cost involved to acquire and construct the asset. In simple term all the costs that are necessary to make the asset usable are capitalised and added to the cost of the asset.

There are many cost in this question which need to be capitalized. Some is relevant to the building and other to the land account.

The costs specifically associated with the building account are

Construction of Building = $500,000

Construction Permit of Building = $5,000

Total cost to be capitalized in building account = $500,000 + $5,000 = $505,000

Delinquent property taxes is applicable on the land inclusive of building will incur even if there is no, building constructed on the land. So, this tax will be included in the Land value.

Answer 2

Answer:

$505000

Explanation:

The costs incurred while acquiring an asset as in the case a landed property includes all the costs incurred from the purchase of the land to the demolishing and building of a new structure on the acquired land. in this question there are two types of costs : costs inquired while buying the land and cost incurred while building the building.

building account cost: building permits + cost of constructing a new building

                                   = $5000 + $500000

                                   = $505000

the delinquent property tax is a property tax left over form the previous property tax payment hence it can't be debited to the building account but as part of the land account.