Question

A company purchased a 3-acre tract of land for a building site for $510,000. The company demolished the old building at a cost of $28,000, but was able to sell scrap from the building for $3.100. The cost of title transfer was $1700 and attomey fees for reviewing the contract was $820. Property taxes paid were $11000, of which $1050 covered the period after the purchase date. The capitalized cost of the land is

A) $549:20
B) 413,870
C) $548,870
D) 554,737

Answer 1

The capitalized cost of the land is calculated by adding the purchase price, demolition costs, title transfer fees, attorney fees, and relevant property taxes, and subtracting any proceeds from the sale of demolition scrap. The accurate calculation of these expenses results in a capitalized cost of $538,470.

Step-by-step explanation:

The calculation of the capitalized cost of land for a company that purchased a building site includes all costs required to make the land ready for its intended use. Therefore, to calculate the capitalized cost, you need to add the purchase price of the land, the cost of demolishing any existing structures, legal fees, title transfer fees, and property taxes relevant to the period after the purchase, while subtracting any proceeds from the sale of the scrap material from the demolition.

Here is the breakdown of the costs:

• Purchase price of land: $510,000
• Demolition costs: $28,000
• Sale of scrap: -$3,100
• Title transfer fees: $1,700
• Attorney fees: $820
• Property taxes (for after purchase period): $1,050

When these figures are tallied, the capitalized cost of the land is calculated as follows:

$510,000 + $28,000 - $3,100 + $1,700 + $820 + $1,050 = $538,470