Question

Sage Co. purchased land as a factory site for $ 592,000. The process of tearing down...

Sage Co. purchased land as a factory site for $ 592,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $ 62,160 to raze the old buildings and sold salvaged lumber and brick for $ 9,324. Legal fees of $ 2,738 were paid for title investigation and drawing the purchase contract. Sage paid $ 3,256 to an engineering firm for a land survey, and $ 100,640 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $ 2,220, and a liability insurance premium paid during construction was $ 1,332. The contractor’s charge for construction was $ 4,055,200. The company paid the contractor in two installments: $ 1,776,000 at the end of 3 months and $ 2,279,200 upon completion. Interest costs of $ 251,600 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Sage Co. Assume that the land survey was for the building. Cost of the Land $ enter a dollar amount Cost of the Building $ enter a dollar amount

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Answer #1

SOLUTION

Cost of Land-

Particulars Amount ($)
Balance in Land accounts-
Cost of Land 592,000
Add: Net cost to raze the old building (62,160-9,324) 52,836
Add: Title insurance policy 2,220
Add: Legal Fees 2,738
Balance in Land accounts 649,794

Therefore cost of Land amounts to $649,794.

Cost of Buildings-

Particulars Amount ($)
Balance in building account-
Cost for drawing (architect) 100,640
Add: Surveying cost 3,256
Add: Liability insurance premium 1,332
Add: Cost of construct 4,055,200
Add: Interest costs 251,600
Balance in building accounts 4,412,028

Therefore, cost of building amounts to $4,412,028

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