Question

Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $540,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $34,000; title insurance, $2,400; and miscellaneous closing costs, $6,800. The warehouse is immediately demolished at a cost of $34,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land.

Answer 1

Cost of land = $617,200

Step-by-step explanation:

The cost of land includes all of the cost necessary to bring and make it ready for the intended use.

These costs include purchase cost, fees and commission associated with the purchase transaction. Further more, included in the historical cost are the net demolition cost of old structure to prepare the land for use. Net cost here means cost of demolition less any incidental proceed from the old structure.

Therefore the cost of the land would

=540,000 + 34,000 + 2,400 + 6,800 +34,000

= $617,200

Answer 2

The amount FVI should record is $ 617,200

Step-by-step explanation:

The amount FVI should record as the cost of the land includes the initial purchase price ,broker's commission,title insurance ,miscellaneous closing costs as well as the cost of dismantling the old warehouse since all of these costs were incurred to bring the asset acquired to its present condition and location.

land purchase price $540,000

broker's commission $34,000

title insurance $2,400

miscellaneous closing costs $6,800

Cost of demolition $34,000

total costs $617,200