Question

Ayayai Co. purchased land as a factory site for $432,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $45,360 to raze the old buildings and sold salvaged lumber and brick for $6,804. Legal fees of $1,998 were paid for title investigation and drawing the purchase contract. Ayayai paid $2,376 to an engineering firm for a land survey, and $73,440 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,620, and a liability insurance premium paid during construction was $972. The contractor’s charge for construction was $2,959,200. The company paid the contractor in two installments: $1,296,000 at the end of 3 months and $1,663,200 upon completion. Interest costs of $183,600 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Ayayai Co. Assume that the land survey was for the building.

Cost of the Land ___$.
Cost of the Building ______$.

Answer 1

Cost of the Land = $474,174

Cost of the Building = $3,219,588

Step-by-step explanation:

The computation of the cost of the land and the cost of the building is shown below:

Cost of the land = Purchase value of land + Raze of old building + Legal fees paid + Title insurance on property cost - salvage value of lumber and bricks

= $432,000 + $45,360 + $1,998 + $1,620 - $6,804

= $474,174

Cost of the building = Charge for construction + Factory drawing plans cost + insurance premium paid + engineer fees + interest costs

= $2,959,200 + $73,440 + $972 + $2,376 + $183,600

= $3,219,588

All other information which is given is not relevant. Hence, ignored it