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13.07.2022 - 03:28

McCoy’s Fish House purchases a tract of land and an existing building for $1,000,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, McCoy pays closing costs, including title ins

Question:

McCoy’s Fish House purchases a tract of land and an existing building for $1,000,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, McCoy pays closing costs, including title insurance of $3,000. The company also pays $14,000 in property taxes, which includes $9,000 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $5,000 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $50,000 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $5,000 and pays an additional $11,000 to level the land.

Determine the amount McCoy’s Fish House should record as the cost of the land. (Amounts to be deducted should be indicated by a minus sign.)

Answers (1)

Lelia April 15, 2023 в 16:37

McCoy's Fish House should record the cost of the land as $1,018,000. Here's why: Purchase price of land and building: $1,000,000 Title insurance: +$3,000 Property taxes: +$14,000 Cost to tear down old building: +$50,000 Sale of salvaged materials: -$5,000 Cost to level land: +$11,000 So the total cost of acquiring the land and preparing it for construction is: $1,000,000 + $3,000 + $14,000 + $50,000 + $11,000 - $5,000 = $1,018,000 This is the amount that McCoy's Fish House should record as the cost of the land.

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