Question

Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $550,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $35,000; title insurance, $2,500; and miscellaneous closing costs, $7,000. The warehouse is immediately demolished at a cost of $35,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land.

Answer 1

Answer:

Land 594,500

Explanation:

We must include all cost necessary to acquire the land and lelave it ready to use.

But, the demolition cost are associate with the old warehouse thus, as thsis asset is being destroyed It will be considered period cost, It will not be capitalized through land.

Acquisition cost    550,000

broker commission 35,000

title insurance            2,500

closing cost               7,000  

Total cost               594,500