Question

Samm Corp. purchased a plot of land for $100,000. The cost to raze a building on the property amounted to $50,000 and Samm received $10,000 from the sale of scrap materials. Samm built a new plant on the site at a total cost of $800,000 including excavation costs of $30,000. What amount should Samm capitalize in its land account?

a. $150,000.
b. $140,000.
c. $130,000.
d. $100,000.

Answer 1

$130,000 should be capitalized in Samm Corp.'s land account. Option C is answer.

Step-by-step explanation:

Calculate the net cost of the land:

Land purchase: $100,000

Building demolition cost: $50,000

Scrap sale proceeds: (+$10,000)

Net land cost: $100,000 + $50,000 - $10,000 = $140,000

Exclude non-land costs from capitalization:

Excavation costs are not part of the land itself but relate to preparing the land for the new plant. Therefore, they should be expensed as part of the plant cost.

Total plant cost: $800,000 (total cost) - $30,000 (excavation) = $770,000

Capitalize the remaining cost in the land account:

Land account: $140,000 (net land cost)

Therefore, Samm Corp. should capitalize $130,000 in its land account ($140,000 net land cost - $10,000 non-land excavation cost).

Option c is the correct answer.

Answer 2

$140,000

Step-by-step explanation:

Sam corporation purchased a plot of land for $100,000

The cost to raze a building on the property is $50,000

Sam received $10,000 from the sale of scrap materials

$800,000 was spent by Sam to build a new plant in the site

The excavation costs was $30,000

Therefore, the amount that Samm should capitalize in its land account can be calculated as follows

= cost of land+ cost to raze a building on the property - sale of scrape materials

= $100,000 + $50,000 - $10,000

= $150,000-$10,000

= $140,000

Hence Samm should capitalize $140,000 in its land account.