Question

Crane Company purchases land for $175000 cash. Crane assumes $4800 in property taxes due on the land. The title and attorney fees totaled $1600. Crane has the land graded for $4200. They paid $15000 for paving of a parking lot. What amount does Crane record as the cost for the land? $175000. $200600. $180800. $185600.

Answer 1

$185,600

Step-by-step explanation:

The cost of the land includes all the expenses that represent an essential part of either the land itself, or the transaction. In this case, this would be:

$175,000 in cash for the land itself.

$4,800 in property taxes due.

$1,600 in attorney fees (without the attorneys, the transaction could not have been completed).

and $4,200 for grading the land (the grading is a process inseparable from the land itself).

If we add these figures we obtain the correct answer of $185,600.

The parking lot, on the other hand, is an entity, or property, that is separate from the land, and its cost of $15,000 is not added to the cost of the land. The parking lot is in fact, a fixed asset that will be depreciated accross time, because the paving of a parking lot deteriorates, whereas the land cannot be depreciated because land, or terrain, are considered to be assets with unlimited useful life.