Question

McCoy’s Fish House purchases a tract of land and an existing building for $820,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, McCoy pays closing costs, including title insurance of $1,200. The company also pays $10,400 in property taxes, which includes $7,200 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $3,200 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $41,000 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $5,600 and pays an additional $11,300 to level the land.
Required:Determine the amount McCoy’s Fish House should record as the cost of the land. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer:

$875,100

Explanation:

The values given in the question are as follows

Purchase price of land= $820,000

Title insurance= $1,200

Property taxes= $10,400

Amont of tax due for the current fiscal year= $3,200

Back taxes= $7,200

Cost of removing the building= $41,000

Salvaged materials= $5,600

Amount used to level the land= $11,300

The cost of land for McCoy's fish house can be calculated as follows

Total cost of land= Puchase price of land+Title insurance+Back property taxes+Cost of removing the building+Level the land-Salvage materials

$820,000+$1,200+$7,200+$41,000+$11,300-$5,600

= $875,100

Hence the total amount McCoy fish house should record as the cost of land is $875,100