Question

On March 1, 2022, Oriole Company acquired real estate, on which it planned to construct a small office building, by paying $81,000 in cash. An old warehouse on the property was demolished at a cost of $10,000; the salvaged materials were sold for $2,900. Additional expenditures before construction began included $3,200 attorney's fee for work concerning the land purchase, $5,500 real estate broker's fee, $11,100 architect's fee, and $17,800 to put in driveways and a parking lot. Determine the amount to be reported as the cost of the land.

Answer 1

$125,700

Step-by-step explanation:

The cost of an asset includes all cos incurred in making the asset available for use. These includes the cost of the item net all discounts, sales tax, freight cost etc.

As long as the cost is necessary for the asset to be available for use, such cost will be capitalized with the cost of the item of asset. Other cost such as maintenance, insurance costs are expensed and not considered as a part of the cost of the asset.

Hence the reported cost of the land

= $81,000 + $10,000 - $2,900 + $3,200 + $5,500 + $11,100 + $17,800

= $125,700