Question

On December 1, 2020, Concord Corporation purchased a tract of land as a factory site for $780000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2020 were as follows: Cost to raze old building $71000 Legal fees for purchase contract and to record ownership 10100 Title guarantee insurance 16600 Proceeds from sale of salvaged materials 7100 In Concord's December 31, 2020 balance sheet, what amount should be reported as land

Answer 1

Answer:

Cost of land =$870,600

Explanation:

The cost of land includes all of the cost necessary to bring and make it ready for the intended

The cost of land includes all of the cost necessary to bring and make it ready for the intended use.

These costs include purchase cost, fees and commision associated with the purchase transaction. Further more, included in the historical cost are the net demolition cost of old structure to prepare the land for use. Net cost here means cost of demolition less any incidental proceed from the old structure.

However, remember that land is not depreciated because it has an infinite life span.

So using the historical cost principle the cost of the land  

= $780,000 + 71,000 + 10,100 + 16,600- 71000

= $870,600

Cost of land =$870,600

Note that the proceeds from the sale of salvaged materials is deducted because it expected to reduce the total cost