Question

Wilson Co. purchased land as a factory site for $1,350,000. Wilson paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect's fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. Interest costs during construction were $255,000.
The cost of the land that should be recorded by Wilson Co. is?

Answer 1

Answer:

The cost of land should be recorded by Wilson Co. : $1,480,320

Explanation:

The cost of land, under GAAP, is all the costs incurred minus any revenue earned which are necessary to put the land to its ready-to-be-used stage, that is factory site.

Thus, all the cost regarding to construction should not be recorded as cost of land, instead, it should be assessed whether it is recorded as the cost of factory.

In details, the cost of land in the question is equal to:

Purchasing price + Tear down two buildings cost - Salvage from two building + Legal fees for investigation and making the purchase + Title insurance cost + Pavement cost = 1,350,000 + 120,000 - 8,100 + 5,220 +3,600 + 9,600 = $1,480,320.