Question

On July 1, 2018, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2018 as follows:Demolition of existing building on site $75,000Legal and other fees to close escrow 12,000Proceeds from sale of demolition scrap 10,000What would be the balance in the land account as of December 31, 2018?a. $400,000.b. $475,000.c. $477,000.d. $487,000

Answer 1

Answer:C. $477,000

Explanation:

Asset are initially recognized at price and other attributable cost. The cost includes tax paid on the assets e.g Vat, legal cost for attorney, delivery, installation, site preparation, professional fees e.g Architect. All income earned from testing the asset or incidental to the asset installation are deducted to arrive at a final cost value.

In the above scenario the price of the land $400,000 is added to demolition cost $75,000, plus the legal fees of $12,000 are all added to $487,000 and the proceed of $10,000 from sales of demolition scrap will be deducted to have a final cost of $477,000.