Question

Use the following to answer questions 1 – 4

J&T Company purchased land as a factory site.  An old building on the property was demolished, and construction began on a new building.  Costs incurred during the first year are listed below:

Land purchased as a factory site	$450,000
Building construction costs	1,750,000
Interest cost related to the construction	80,000
Demolition of old building	45,000
Title investigation of land	11,000
Property taxes on land (past due for last year)	5,700
Property taxes on land (for the next year)	6,100
Architect fees (for new building)	32,000
Sale of salvaged materials	18,000

1.  $__________How much of the “property taxes on the land for the next year” should be capitalized in the Land account?

2.  How should the “sale of salvaged materials” be recorded?

         A. As an added cost of the land

B.  As a reduction of the cost of the land

C.  As an added cost to the building

D.  As a reduction of the cost of the building

3. $___________What amount should be recorded to the Land account?              

4. $___________What amount should be recorded to the Building account?

Answer 1

1	Property taxes on land (Either past due or due for the next year) are operating expenses and it should not be capitalized
	Answer is $ 0
2	B. As a reduction of the cost of land
3	Land:
					$	$
	Purchase price					450000
	Demolition of old building				45000
	Less: Salvage value				18000	27000
	Legal fees for title investigation of land					11000
	Total					488000
4	Building:
						$
	Architect’s fees (for new building)					32000
	Construction costs					1750000
	Interest on construction loan					80000
	Total					1862000
	I appreciate your ratings