Final answer:
The correct answer is C. The acquisition cost of the land is calculated by adding the purchase price to additional necessary costs and deducting the salvage value of any recoverable items. In the case of Hull Company, the acquisition cost is $99,370, including removal, grading, paving, and closing costs, minus the lumber salvage value.
Step-by-step explanation:
The acquisition cost of the land for Hull Company would include the purchase price plus any additional costs that are necessary to get the land ready for its intended use. This would include the removal of the shed, filling and grading the land, and the paving of the parking lot. However, the salvage value of the lumber from the shed should be deducted from these costs, as it is a recovery on the expenditure. The broker's commission and closing costs are also considered part of the acquisition cost. Therefore, the calculation for the acquisition cost is as follows:
- Purchase price: $86,000
- Removal of shed: +$300
- Filling and grading: +$1,500
- Broker commission: +$1,130
- Paving of parking lot: +$10,000
- Closing costs: +$560
- Salvage value of lumber: -$120
Adding these amounts together, we get $86,000 + $300 + $1,500 + $1,130 + $10,000 + $560 - $120 = $99,370.