Question

Beerbo Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200; no salvage value was recuperated. What amount should be recorded as the cost of the land

Answer 1

The amount recorded as cost of land is: $38,600

Step-by-step explanation:

In the initial acquisition of an asset, the acquisition cost includes all normal, necessary and reasonable expenditure to obtain the asset and costs to get it ready for use are also part of acquisition cost. In this example, the normal cost of the land is $27,000, while the closing costs and the cost of remodeling the land (removing the old building) are necessary costs hence they are recorded as part of the cost of the land.

Therefore the total cost of the land is calculated as:

Price of land + Closing cost + remodeling cost

= 27,000 + 1,400 + 10,200 = $38,600