Question

Murphy Self Storage purchased land, paying $175,000 cash as a down payment and signing a $160,000 note payable for the balance. Murphy also had to pay delinquent property tax of $1,500, title insurance costing $3,500, and $9,000 to level the land and remove an unwanted building. The company paid $53,000 to add soil for the foundation and then constructed an office building at a cost of $1,000,000. It also paid $54,000 for a fence around the property, $20,000 for the company sign near the property entrance, and $5,000 for lighting of the grounds.

Requirement 1. What is the capitalized cost of each of Murphy's land, land improvements, and building?

Answer 1

The capitalized cost of Murphy's land is $180,000, the capitalized cost of land improvements is $116,000, and the capitalized cost of the building is $1,025,000.

Step-by-step explanation:

To determine the capitalized cost of each item, we need to sum up all the costs associated with the land, land improvements, and building. The capitalized cost is the total cost required to acquire and prepare the asset for use.

1. Land: The capitalized cost of the land includes the down payment of $175,000, delinquent property tax of $1,500, and title insurance costing $3,500. The capitalized cost of the land is $180,000 ($175,000 + $1,500 + $3,500).
2. Land Improvements: The capitalized cost of land improvements includes the cost to level the land and remove an unwanted building ($9,000), adding soil for the foundation ($53,000), and constructing a fence around the property ($54,000). The capitalized cost of land improvements is $116,000 ($9,000 + $53,000 + $54,000).
3. Building: The capitalized cost of the building includes the cost of constructing the office building ($1,000,000), the company sign near the property entrance ($20,000), and the lighting of the grounds ($5,000). The capitalized cost of the building is $1,025,000 ($1,000,000 + $20,000 + $5,000).

Answer 2

The capitalized cost of Murphy Self Storage's land is $189,000, which includes various acquisition and preparation costs. The cost for land improvements is $132,000, covering additions like soil, a fence, signage, and lighting. The building's capitalized cost is $1,000,000, which is solely for its construction.

Step-by-step explanation:

To calculate the capitalized cost for Murphy Self Storage's land, land improvements, and building, we need to add all costs directly associated with the acquisition and preparation of the land, and the construction of the building that provides a long-term benefit to the company.

The capitalized cost of the land includes the purchase price, delinquent property tax, title insurance, and costs to prepare the land (leveling and removal of unwanted building). It does not include the cost of the note payable, as that represents the financing of the purchase, not a direct cost of the land itself:

Purchase Price (Down Payment): $175,000

Delinquent Property Tax: $1,500

Title Insurance: $3,500

Cost to Level the Land and Remove Building: $9,000

Therefore, the total capitalized cost of the land is $175,000 + $1,500 + $3,500 + $9,000 = $189,000.

Next, Murphy's land improvements include the costs of adding soil for the foundation, constructing a fence, the company sign, and lighting for the grounds:

Soil for Foundation: $53,000

Fence: $54,000

Company Sign: $20,000

Ground Lighting: $5,000

Hence, the total capitalized cost for land improvements is $53,000 + $54,000 + $20,000 + $5,000 = $132,000.

Lastly, the building's capitalized cost is straightforward as it pertains only to the construction costs, which is $1,000,000.