Question

Determine the acquisition cost of land and building [LO1 Italian Bread Company purchased land as a factory site for $61,200. An old building on the property was demolished, and construction began on a new building. Costs incurred during the first year are listed below Demolition of old building Sale of salvaged materials Architect fees (for new building) Legal fees (for title investigation of land) Property taxes on the land (for the first year) Building construction costs Interest costs related to the construction $ 8,600 (2,400) 15,300 2,140 3,110 509,000 18,900
Required:
Determine the amounts that the company should record in the Land and the Building accounts.

Answer 1

Answer:

Land account = $69,540

Building account = $543,200

Explanation:

land

Cost of land $61,200

Demolition of old building $8,600

Sale of salvaged materials ($2,400)

Legal fees (for title investigation of land) $2,140

total $69,540

building

Architect fees (for new building) $15,300

Building construction costs $509,000

Interest costs related to the construction $18,900

total $543,200

Property taxes on the land (for the first year) $3,110 are not capitalized. Land costs cannot be depreciated, while building costs are.