Question

Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $590,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $39,000; title insurance, $2,900; and miscellaneous closing costs, $7,800. The warehouse is immediately demolished at a cost of $39,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land.

Answer 1

Answer: $678,700

Explanation:

In calculating the amount to be recorded as the cost of the land, one must take into account EVERYTHING that DIRECTLY went into making the land suitable for use.

In this case everything listed went into making the land suitable for use so we sum them all up.

= Cost of Land and Warehouse + Broker's Commission + Title Insurance + Miscellaneous Closing Costs + Demolition cost

= 590,000 + 39,000 + 2,900 + 7,800 + 39,000

= $678,700 is what FVI should record as cost of Land.

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