Soccer Wholesale purchased land and a warehouse for $800,000. In addition to the

Question

Soccer Wholesale purchased land and a warehouse for $800,000. In addition to the purchase price, Soccer warehouse makes the following expenditures related to the acquistion: broker's commission, $48,000; title insurance, $3,000 and miscellaneous closing costs, $8,000. The warehouse is immediately demolished at a cost of $80,000 in anticipationof building a new warehouse.

a. Determine the amount Soccer Warehouse should record as the cost of the land.

b. Prepare the journal entry to record the purchase of the land - assume a cash transaction.

Explanation / Answer

Part A)

The cost of land will comprise of all the costs incurred in order to make the land available for use. It can be calculated with the use of following formula:

Cost of Land = Purchase Price of Land + Broker's Commission + Title Insurance + Closing Costs + Cost of Removing Warehouse

__________

Using the values provided in the question, we get,

Cost of Land = 800,000 + 48,000 + 3,000 + 8,000 + 80,000 = $939,000

__________

Part B)

The entire cost of land including removal of warehouse will be treated as the purchase price and debited to the cost of land. Purchase of land against cash would result in a decrease in the cash balance as indicates by a credit to cash account. The journal entry is given below:

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.