Question

McCoy's Fish House purchases a tract of land and an existing building for $940,000. 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 $2,400. The company also pays $12,800 in property taxes, which includes $8,400 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $4,400 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $47,000 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $3,800 and pays an additional $10,400 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

$1,004,400

Explanation:

The computation of the cost of land is shown below:-

The Total cost of land = Purchase price of the land + Title Insurance + Property Taxes + Cost of removing the building + Level the land - Salvaged materials

= $940,000 + $2,400 + $8,400 + $47,000 + $10,400 - $3,800

= $1,004,400

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