Question

On February 1, 2014, Nelson Corporation purchased a parcel of land as a factory site for $280,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2014. Costs incurred during this period are listed below: Demolition of old building $ 20,000 Architect's fees 35,000 Legal fees for title investigation and purchase contract 5,000 Construction costs 1,340,000 (Salvaged materials resulting from demolition were sold for $10,000.)

Nelson should record the cost of the land and new building, respectively, as

Answer 1

Land = $295,000

Building = $1,375,000

Explanation:

The computation of cost of the land and new building is shown below:-

Land = Parcel of land + Demolition of old building + Legal fees for title investigation and purchase contract - Salvaged materials resulting from demolition were sold

= $280,000 + $20,000 + $5,000 - $10,000

= $305,000 - $10,000

= $295,000

Building = Architect's fees + Construction costs

= $35,000 + $1,340,000

= $1,375,000

We simply applied the above formulas