Question

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price $ 191,000 Real estate commissions 16,600 Legal fees 2,400 Expenses of clearing the land 3,600 Expenses to remove old building 2,600 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building

Answer 1

Cost allocated to land is 216200 and cost allocated to building is zero.

Step-by-step explanation:

The costs of building and the costs of land can be determined by adding all the costs associated with it. If the expenses are made for building, then it will be considered as building cost or if the expenses are made to acquire land then these expenses will be considered as land costs.

Now calculate the costs allocated to land.

Costs allocated to land = 191,000 + 16,600 + 2,400 + 2,600 + 3,600

Costs allocated to land = 216,200

In this case, all costs are allocated to land. Thus, costs allocated to the building are zero.

Answer 2

Cost of the land = $216,200

Cost of the new building = $0

Step-by-step explanation:

Computing table for cost of land:

Particular Amount

Purchase price of land $191,000

Real estate commissions pay $16,600

Legal fees pay $2,400

Expenses of clearing the land $3,600

Expenses to remove old building $2,600

Cost of the land $216,200

NOTE: There is no information provided for cost of the new building.

So, Cost of the new building = $0