Question

Culver Co. purchased land as a factory site for $440,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $46,200 to raze the old buildings and sold salvaged lumber and brick for $6,930. Legal fees of $2,035 were paid for title investigation and drawing the purchase contract. Culver paid $2,420 to an engineering firm for a land survey, and $74,800 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,650, and a liability insurance premium paid during construction was $990. The contractor’s charge for construction was $3,014,000. The company paid the contractor in two installments: $1,320,000 at the end of 3 months and $1,694,000 upon completion. Interest costs of $187,000 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Culver Co. Assume that the land survey was for the building.

Answer 1

Answer:

The cost of land is $482,955 and cost of building is $3,279,210.

Explanation:

According to the scenario, the computation of the given data are as follows:

The cost of land = Purchase cost + Raze cost - Sold salvage + Legal fees + Title insurance

By putting the following value, we get

= $440,000 + $46,200 - $6,930 + $2,035 + $1,650

= $482,955

Now, The cost of Building = Land survey + Drawing plans + Liability insurance + Contractor's charge + Interest

By putting the value, we get

= $2,420 + $74,800 + $990 + $3,014,000 + $187,000

= $3,279,210