Question

On July 1, 2020, Preston Tucker and Sons AutomobileCompany acquired real estate to construct a small combination office and warehouse building. Tuckerpaid $125,000 cash as a down payment and issued a $375,000 note payable; the note is due in 3 years with an interest rate of 6.75%. An old warehouse on the property was demolished at a cost of $21,800; the salvaged materials from the warehouse were sold for $1,500. Additional expenditures before construction began, included: $3,100 for attorney's fee pertaining to the real estate purchase, $7,500 for real estate broker's fee, $9,100 architect's fee for designing plans for the new office and warehouse, and $16,000 to put in driveways and a parking lot. Required (a) Determine the amount to be reported as the cost of the land. (b) For each cost not used in part (a), indicate the account to be debited.

Answer 1

Preston Tucker and Sons Automobile Company

A. Cost of the land = $530,900

Building account:

Architect's fee for designing plans = $9,100

C. Driveways and Parking Lot:

Driveways and parking lot = $16,000

Step-by-step explanation:

a) Data and Calculations:

Down payment = $125,000

Note payable = $375,000

Total = $500,000

Interest rate of note payable = 6.75%

Cost of demolishing warehouse = $20,300 ($21,800 - 1500)

Attorney's fee for real estate purchase = $3,100

Real estate broker's fee = $7,500

Architect's fee for designing plans = $9,100

Driveways and parking lot = 16,000

Cost of the Land:

Payment for the land = $500,000

Demolishing old warehouse 20,300

Attorney's and broker's fee 10,600

Total cost of the land = $530,900

Building account:

Architect's fee for designing plans = $9,100

Driveways and Parking Lot:

Driveways and parking lot = $16,000