Question

On March 1, 2017, Westmorlan Company acquired real estate on which it planned to construct a small office building. The company paid $75,000 in cash. An old warehouse on the property was razed at a cost of $8, 600 the salvaged materials were sold for $1, 700. Additional expenditures before construction began included $1, 100 attorney's fee for work concerning the land purchase, $5,000 real estate broker's fee, $7, 800 architect's fee, and $14,000 to put in driveways and a parking lot. For each cost not used in calculating cost of the land, indicate the account to be debited.

Answer 1

The cost of the land is $102,000, calculated by adding the purchase price, demolition net of salvage, attorney's fee, broker's fee, and the cost of driveways and parking lot. The $7,800 architect's fee is debited to the Construction in Progress or Building account, not the Land account.

Step-by-step explanation:

When calculating the cost of land, we must include all expenditures that are directly related to preparing the land for its intended use. In this scenario, the company paid $75,000 in cash for the land, $8,600 for demolishing an old warehouse, which is partly offset by the sale of salvaged materials for $1,700. Additionally, there were costs for legal and professional services as well as site preparation.

The following accounts will be affected:

Land: $75,000 (purchase price) + $6,900 (demolition net of salvage) + $1,100 (attorney's fee) + $5,000 (broker's fee) + $14,000 (driveways and parking lot) = $102,000 total cost of the land.

Architect's fee: This cost is typically debited to a Construction in Progress or Building account since it relates directly to the construction of the building, not the land.

Therefore, the $7,800 architect's fee will not be included in the cost of the land but will instead be an initial cost of the building.

Answer 2

Answer:1. Cost on warehouse of

$8600

Answer. Debit cost of land

2. Sales of salvage materials of $1700

Answer. Credit cost of land

3. Attorney fee of $1100

Answer Debit cost of land

4.Broker fee of $5000

Answer. Debit cost of land

5. Architect fee $7800

Answer. Debit cost of land

6. Driveway and parking lot

Answer. Debit cost of land.

Step-by-step explanation:

The cost of property includes the price of purchase and other related tax e.g vat paid on the property, plants or equipment.

The cost of the asset further includes all cost spent to bring it to the desired state of use while subtracting all income earned in the process and this necessitate the treatment of the cost of raising warehouse and salvage materials.

Included in the cost of the asset acquired are the professional fees incurred like the Architecture, Attorney etc. Furthermore the cost included the driveway and parking lots for they are also necessary to make it usable.