Question

Wilson Co. purchased land as a factory site for $1,350,000. Wilson paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect's fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. Interest costs during construction were $255,000.

63. The cost of the land that should be recorded by Wilson Co. is
a. $1,470,720.
b. $1,480,320.
c. $1,484,820.
d. $1,494,420.

Answer 1

The total cost of the land that should be recorded by Wilson Co. is $1,470,320, which includes purchase price, net demolition costs, legal and title insurance fees, architect's fees, and interest during construction.

Step-by-step explanation:

The cost of the land recorded by Wilson Co. involves several different expenses that are capitalized as part of the land cost. The purchase price of $1,350,000, demolition costs of $120,000 (minus the salvage proceeds of $8,100), legal and title insurance fees of $5,220 and $3,600 respectively, as well as architect's fees of $46,800, all contribute to the land's cost basis. Interest costs during construction of $255,000.63 are also capitalized since they are considered a cost necessary to get the land ready for its intended use. Conversely, the liability insurance during construction and excavation costs are not capitalized into the cost of the land as they are not directly linked to the purchase or preparation of the land but rather to the construction of the factory. The contractor's payment and the assessment for pavement are associated with the construction of the factory and improvements, not the land cost. Thus, the total cost of the land that should be recorded is the sum of its purchase price, net demolition costs (demolition minus salvage), legal and title insurance fees, architect's fees, and interest during construction, which equals $1,470,320.