Determining Cost of Land Intermountain Delivery Company acquired an adjacent lot

Question

Determining Cost of Land

Intermountain Delivery Company acquired an adjacent lot to construct a new warehouse, paying $100,000 and giving a short-term note for $700,000. Legal fees paid were $5,000, delinquent taxes assumed were $18,500, and fees paid to remove an old building from the land were $12,000. Materials salvaged from the demolition of the building were sold for $4,000. A contractor was paid $950,000 to construct a new warehouse.

Determine the cost of the land to be reported on the balance sheet: ____________

Explanation / Answer

Hi,

Please find the answer as follows:

Cost of Land = 100000 (Cash) + 700000 (Short Term Note) + 5000 (Legal Fees) + 18500 (Delinquent Taxes) + 12000 (Removal of Old Building) - 4000 (Sales of Materials) = 831500

Answer is 831500

Explanation:

Any expenditure incurred to prepare the land for it's use will be treated as a part of cost of land besides purchase price paid in the form of cash and short term note.

Thanks

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