Question

a company incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building: purchase price of the land $ 428,000 sale of salvaged parts already on the land $ 48,000 demolition of the old building $ 58,000 ground-breaking ceremony (food and supplies) $ 2,900 land preparation and leveling $ 8,900. What amount should be recorded for the purchase of the land

Answer 1

The total amount to be recorded for the purchase of the land is $446,900, which includes the purchase price, demolition and leveling costs, minus the proceeds from the sale of salvaged parts. Costs of the ground-breaking ceremony are excluded from the land cost calculation.

Step-by-step explanation:

Calculating the Cost of Land Purchase

To determine the cost of the land purchase, we need to consider only the costs that are directly related to acquiring and preparing the land for use. The purchase price of the land is a direct cost, as are any additional amounts paid for land preparation, like demolition and leveling. However, we should offset these costs by any proceeds from the sale of salvaged parts. Costs associated with events like a groundbreaking ceremony are typically not capitalized as part of the land cost. Based on these guidelines:

1. The purchase price of the land is $428,000.
2. The sale of salvaged parts would reduce this amount by $48,000.
3. Costs of demolition ($58,000) and land preparation and leveling ($8,900) are necessary for land preparation and should be included in the land cost.
4. The cost of the ground-breaking ceremony ($2,900) is not included in the land cost, because it is an event cost and not a direct cost of preparing the land.

Therefore, the amount recorded for the purchase of the land would be:

Purchase price: $428,000
- Sale of salvaged parts: -$48,000
+ Demolition costs: $58,000
+ Land preparation and leveling costs: $8,900
Total land cost: $446,900