Question

McCoy's Fish House purchases a tract of land and an existing building for $810,000. 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 $1,100. The company also pays $10,200 in property taxes, which includes $7,100 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $3,100 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $40,500 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $5,400 and pays an additional $11,200 to level the land.

Required:
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

McCoy's Fish House should record the cost of the land as $867,600, after factoring in the purchase price, closing costs, taxes, demolition and leveling costs, and subtracting proceeds from salvaged materials.

Step-by-step explanation:

McCoy's Fish House will calculate the cost of the land by adding the purchase price and various expenditures directly attributable to getting the land ready for its intended use, then subtracting any proceeds from the sale of the salvaged materials.

The total land cost calculation is as follows:

• Purchase price of the tract of land and building: $810,000
• Closing costs (including title insurance): +$1,100
• Back taxes paid on behalf of the seller: +$7,100
• Current year property taxes after purchase date: +$3,100
• Cost to demolish old building: +$40,500
• Leveling the land: +$11,200
• Proceeds from salvaged materials: - $5,400

The sum of these amounts results in the total land cost:

$810,000 + $1,100 + $7,100 + $3,100 + $40,500 + $11,200 - $5,400 = $867,600

Answer 2

The amount McCoy's Fish House should record as the cost of the land is $864,500

Step-by-step explanation:

In order to calculate the amount McCoy's Fish House should record as the cost of the land we would have to make the following calculation:

cost of the land=Purchase price(including building+ insurance+back property tax+cost incurred to remove the building-salvage value of materials+cost incurred to level the land

cost of the land=$810,000+$1,100+$7,100+$40,500-$5,400+$11,200

cost of the land=$864,500

The amount McCoy's Fish House should record as the cost of the land is $864,500