Corp, purchased land as a factory site for $1345000. Marigold paid $117000 to te

Question

Corp, purchased land as a factory site for $1345000. Marigold paid $117000 to tear down two buildings on the land. Salvage was sold for $8000. Legal fees of $5000 were ng the purchase. Architect's fees were $46700. Title insurance cost $3800, and liability insurance during construction cost $4100. Excavation cost $15000. The contractor was paid $4200000. An assessment made by the city for pavement was $9900. Interest costs during construction were $250000. The cost of the land that should be recorded by Marigold Corp. is $1486800 @1462800. $ 1472700. O s 1477200.

Explanation / Answer

Marigold Corp

Determination of cost of land:

Cost of land –

Purchase value                                                $1,345,000

Cost to tear down buildings on the land        $117,000

Less: Sale proceeds of salvage                      ($8,000)

Legal fee for title investigation                     $5,000

Insurance cost                                                 $3,800

Assessment for pavement                               $9,900

Cost of land to be capitalized                        $1, 472,700

Notes:

Architect’s fee of $46,700 relates to cost of Building and hence not considered for computation of cost of land.

Liability insurance during construction relates to cost of building and hence not considered for computation of cost of land.

Excavation cost also forms part of building cost and not cost of land.

Furthermore, the amount paid to the contractor as well as the interest cost during construction form part of the building cost and not the cost of land.

Hence, all these costs are excluded in arriving at the cost of land.

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