Question

Vijay Inc. purchased a three-acre tract of land for a building site for $250,000. On the land was a building with an appraised value of $122,000. The company demolished the old building at a cost of $12,600, but was able to sell scrap from the building for $1,690. The cost of title insurance was $960 and attorney fees for reviewing the contract were $540. Property taxes paid were $3,800, of which $320 covered the period subsequent to the purchase date.

The capitalized cost of the land is:

Answer 1

$264,930

Step-by-step explanation:

Land is an asset, an item of property plant and equipment (fixed asset). As such it is recorded at historical cost which includes the cost of the land as well as other cost incurred in making the land available for use net of the income generated in the process of making the asset available for use. Other cost may have been incurred in the process of purchasing the land but only the cost necessary to make the land available for use are capitalized.

Hence, the capitalized cost of the land is:

= $250,000 + $12,600 - $1,690 + $540 + $3,800 - $320

= $264,930

The cost of insurance will be expensed.