Question

McCoy's Fish House purchases a tract of land and an existing building for $930,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, McCoy pays closing costs, including title insurance of $2,300. The company also pays $12,600 in property taxes, which includes $8,300 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $4,300 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $46,500 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $3,600 and pays an additional $10,300 to level the land.

Required:
Determine the amount McCoy’s Fish House should record as the cost of the land.

Answer 1

The amount McCoy’s Fish House should record as the cost of the land is $993,800.

Step-by-step explanation:

The amount McCoy’s Fish House should record as the cost of the land can be determined as follows:

Total cost of the land = Purchase price + Title insurance + Property taxes which are back taxes + Cost of removing the building – Salvage value + Additional cost of leveling the land = $930,000 + $2,300 + $8,300 + $46,500 - $3,600 + $10,300 = $993,800

Therefore, the amount McCoy’s Fish House should record as the cost of the land is $993,800.