Question

On December 1, 2010, Bords Co. purchased a 400,000 tract of land for factory site. Bords...

On December 1, 2010, Bords Co. purchased a 400,000 tract of land for factory site. Bords razed an old building on the property and sold the materials it salvaged from the demolition . Bords incurred additional cost and realized salvage value proceeds during December 2010 as follows:

Demolition of building 50,000

Legal fees for purchase contract

and recording ownership 10,000

Title guarantee insurance 12,000

Proceeds for sale of salvaged

materials 8,000

In it's Decenber 31, 2010 balance sheet , Bords should report a balance in the land account of?

a.) 442,000

b.)422,000

c.)460,000

d.)464,000

Business   Accounting   
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Answer #1

To determine the cost of an assets all the expenses such as cost on installment, legal fees and insurance etc should be added to the purchase price. Sales proceeds of salveged materials is deducted from demolition cost is added purchase is because the land will be used as factory site. So these cost will also be capitalized.

The answer is Option D. $464000

Purchase Price 400000
(+)Demolition Cost of Building 50000
(+) Legal Fees for Purchase and recording Ownership 10000
(+)Title Guarantee Insurance   12000
(-) Sales Proceeds of Salvaged Materials 8000
Total Land Cost 464000
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