Question

On December 1, 20X5, Boyd Co. purchased a $400,000 tract of land for a factory site. Boyd razed an old building on the property and sold the materials it salvaged from the demolition. Boyd incurred additional costs and realized salvage proceeds during December 20X5 as follows:

Answer 1

$464,000

Step-by-step explanation:

The costs associated to the purchase of the tract of land were:

• Purchase price of land = $400,000
• Demolition of old building = $50,000
• Legal fees = $10,000
• Title guarantee insurance = $12,000
• Proceeds from sale of salvaged material = $8,000

The total cost of the land = purchase price + demolition costs + legal fees + title guarantee insurance - proceeds from salvaged materials = $400,000 + $50,000 + $10,000 + $12,000 - $8,000 = $464,000

The demolition costs are capitalized to land because they are a necessary cost to bring the land into its intended condition. Legal fees and title guarantee are necessary to avoid legal problems.