Question

Cullumber Company acquires land for $89,000 cash. Additional costs are as follows. Removal of shed $200 Filling and grading 1,300 Salvage value of lumber of shed 190 Broker commission 1,070 Paving of parking lot 14,000 Closing costs 480 Cullumber will record the acquisition cost of the land as

Answer 1

The acquisition cost of the land for Cullumber Company, which includes the purchase price and additional expenses to prepare the land for use, would be recorded as $91,860. This calculation does not include paving costs but does account for the salvage value of lumber subtracted from removal costs.

Step-by-step explanation:

The acquisition cost of the land for Cullumber Company should include the purchase price and all expenditures needed to prepare the land for its intended use. Here's the breakdown:

• Purchase of land: $89,000
• Removal of shed: $200
• Filling and grading: $1,300
• Broker commission: $1,070
• Closing costs: $480

The costs related to the paving of the parking lot ($14,000) are not included in the acquisition cost of the land because these are considered improvements and not a direct cost of getting the land ready for use. The salvage value of lumber from the shed ($190) would be deducted from the associated cost of removal, thus:

• Net cost of shed removal: Removal of shed ($200) - Salvage value ($190) = $10

The total acquisition cost of the land would then be calculated as follows:

$89,000 (land) + $10 (net shed removal) + $1,300 (filling and grading) + $1,070 (broker commission) + $480 (closing costs) = $91,860