Question

Sherman Corporation purchases land for 100,000. Sherman incurs the following costs associated with the land acquisition:

Property taxes for current year3,000
Cost of removing old building
7,000
Title insurance1,000
Cost of grading
4,000
Delinquent property taxes2,000
What is the cost that Sherman should capitalize in the cost of land?
1) $112,000
2) $114,000
3) $117,000
4) $110,000
5) $100,000

Answer 1

Sherman Corporation should capitalize a total of $117,000 for the cost of land, which includes the purchase price and additional costs directly related to preparing the land for its intended use.

Step-by-step explanation:

The cost that Sherman Corporation should capitalize in the cost of land includes not only the purchase price but also expenses directly related to bringing the land to a condition ready for its intended use. This includes the purchase price of $100,000, plus additional costs associated with the land acquisition:

• Property taxes for the current year: $3,000
• Cost of removing the old building: $7,000
• Title insurance: $1,000
• Cost of grading: $4,000
• Delinquent property taxes: $2,000

By adding these amounts, the total capitalized cost of the land is $117,000 which corresponds with option 3 in the list provided.