Question

On January 1, Duane Company purchases land at a cost of $125,000. Duane incurs costs of $2,000 for the closing fees and surveys. Duane also spent $7,500 on clearing costs to prepare the land for use. What is the cost of land to be recorded by Duane?

Answer 1

Total cost of land = $134,500

Step-by-step explanation:

To determine the cost to be recorded, we have to analyze each cost.

Since the company performs closing fees and surveys during purchasing time, it is capital expenditure. Therefore, it will be added to the initial cost.

Clearing cost to prepare the land also occurs during the land purchase time. Therefore, it is also a capital expense. So, it is also added to the initial cost.

Therefore, the total cost to purchase the land = Purchasing price + Closing fees and surveys + Clearing costs.

= $(125,000 + 2,000 + 7,500)

= $134,500