Question

McCoy’s Fish House purchases a tract of land and an existing building for $880,000. 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 $1,800. The company also pays $11,600 in property taxes, which includes $7,800 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $3,800 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $44,000 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $6,800 and pays an additional $11,900 to level the land.

Determine the amount McCoy’s Fish House should record as the cost of the land. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

$938,700

Step-by-step explanation:

The calculation of Cost of land is shown below:-

Cost of land = Acquisition cost + Closing cost and title insurance + Back taxes + Payment to contractor + Level land - Sale of salvaged materials

= $880,000 + $1,800 + $7,800 + $44,000 + $11,900 - $6,800

= $945,500 - $6,800

= $938,700

Therefore for calculating the cost of land we simply applied the above formula.