Question

Cala Manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. The negotiated purchase price is $294,000 for the lot plus $189,000 for the old building. The company pays $39,300 to tear down the old building and $58,096 to fill and level the lot. It also pays a total of $1,454,352 in construction costs—this amount consists of $1,368,000 for the new building and $86,352 for lighting and paving a parking area next to the building.
  
Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.

Answer 1

Cost of land = Cash purchase price of lot + Cash price of old building + Cost of demolition + cost of filling

= 294,000 + 189,000 + 39,300 + 58,096

= $580,396

Cost of building = $1,368,000

Cost of land improvement = Cost of lighting and paving parking area

= $86,352

Land	580,396
Land improvement	86,352
Building	1,368,000
Cash		$2,034,748

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