Question

Half the land purchased in Item 1 was prepared as a building site. Costs of $26,000 were incurred to clear the land, and the timber recovered was sold for $3,000. A new building was built for $60,000. Architect’s fees relating to construction were $18,000, and imputed interest on equity funds used during construction was $15,000. No debt is outstanding.

Answer 1

Here is a breakdown of the costs and revenues:

1. Land preparation:

- Cost: $26,000

2. Timber recovery:

- Revenue: $3,000

3. Building construction:

- Cost: $60,000

4. Architect's fees:

- Cost: $18,000

5. Imputed interest on equity funds used during construction:

- Cost: $15,000

To calculate the total cost, add up the costs in items 1, 3, 4, and 5:

Total cost = Land preparation cost + Building construction cost + Architect's fees + Imputed interest

Total cost = $26,000 + $60,000 + $18,000 + $15,000

To calculate the total revenue, add up the revenue in item 2:

Total revenue = Timber recovery revenue

Total revenue = $3,000

To determine the net cost, subtract the total revenue from the total cost:

Net cost = Total cost - Total revenue

Net cost = ($26,000 + $60,000 + $18,000 + $15,000) - $3,000

The net cost represents the overall expenses incurred after considering the revenue generated from selling the timber.