Question

Exercise 9-3

On March 1, 2019, Pina Colada Corp. acquired real estate on which it planned to construct a small office building. The company paid $88,000 in cash. An old warehouse on the property was razed at a cost of $9,000; the salvaged materials were sold for $2,700. Additional expenditures before construction began included $1,400 attorney’s fee for work concerning the land purchase, $5,600 real estate broker’s fee, $7,600 architect’s fee, and $13,300 to put in driveways and a parking lot.

Determine the amount to be reported as the cost of the land.

Answer 1

Cost of Land
	$
Cash paid	88,000.00
Net cost of removing warehouse ($9,000 – $2,700)	6,300.00
Attorney's fee	1,400.00
Real estate broker's fee	5,600.00
Total	101,300.00
The architect's fee ($7,600) should be debited to the building account.
The cost of the driveways and parking lot ($13,300) should be debited to Land Improvements.
Hence, architect's fee and cost of the driveways and parking lot not included in the cost of land.