Question

In year 2, Kilroy Company purchased land for a new office building at a purchase price of $325,000. There was an existing building on the site that was demolished at a cost of $12,000. Scrap from the demolition was sold for $3,500. The building was completed during year 2. In addition, the following costs were incurred: Professional Fees: Attorneys for the purchase contract $ 7,500 Engineers to determine the required grading $ 18,000 Architects to design new building $ 40,000 Building permits $ 8,000 Construction of new building $ 1,275,000 In Kilroy’s December 31, year 2, financial statements, how will the above costs be reported? Land Building Expense a. $ 341,000 $ 1,323,000 $ 0 b. $ 351,500 $ 1,315,000 $ 15,500 c. $ 359,000 $ 1,323,000 $ 0 d. $ 333,500 $ 1,275,000 $ 73,500

Answer 1

Answer:

Correct option is C

Explanation:

Cost of Land:-

Purchase Cost = $325000

Demolition Cost = $12000

Cost of Attorneys for the Purchase Contract = $7500

Grading Cost= $18000

Less:- Scrape Sold = $3500

Total Cost of Land= $359000

Cost of Building:-

Cost of Architect Design= $40000

Cost of Building Permits= $8000

Cost of Construction of Building= $1275000

Total Cost of Building=  $1323000

There is no Cost that will be reported as expenses as all the cost need to be capitalised.