Question

On Jan 1, 2020 Joe Pepperoni bought a piece of land with an old building on it. He knocks down the old building and builds a pizza shop and adds a parking lot. The cost of the land was $50,000. He paid $3000 in delinquent real estate taxes and $7000 in attorney’s fees at the closing. The cost to knock down the old building and clear the land was $16,000, but he was able to sell the scrap bricks and lumber for $6,000. On April 1 Joe began construction on a new building paying $200,000 and another $300,000 on October 1, he paid $10,000 to have the parking lot paved and have lights put up. After the building was completed Joe had an alarm system installed for $2000.

What are the capitalized costs of the associate with the purchase of the property and construction of the building? What journal entries would be recorded?

Answer 1

Particulars	Amount
Cost of land	50000
Real estate taxes	3000
Fees	7000
Cost of knock down	16000
Sale of scrap	(6000)
Total capitalization cost of Land	70,000

Particulars	Amount
Construction cost	500,000
Building cost	500,000

Journal entries

Date	Particulars	Debit	Credit
Jan 1	Land	70,000
	Cash		70,000
	(Land purchased)
April 01	Building	500,000
	Cash		500,000
	(Construction amount paid)
October 1	Repairs and maintenance	12000
	Cash		12000
	(Expense for parking lot and alarmin system)