Question

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 closing fees (including title and lawyer fees). Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at:_________.

Answer 1

Answer: $495,000

Explanation:

ALL costs that went into the DIRECT acquisition of the asset as well as COSTS TO SET IT UP for use by the firm should be accounted for in the amount recorded.

In this case that would mean that the cost price, the closing fees and the modification fees all need to be accounted in the final amount.

That would be

$400,000 + $35,000 + $60,000

= $495,000

$495,000 should be recorded as the building's cost.