Question ID: 42307FAR2019U
Pine Co. purchased land for $450,000 as a factory site. An existing building on the site was razed before construction began. Additional information is as follows:
|Cost of razing old building||$60,000|
|Title insurance and legal fees to purchase land||30,000|
|New building construction cost||1,850,000|
What amount should Pine capitalize as the cost of the completed factory building?
Correct answer: c.
The cost of land includes razing the building, title insurance, and legal fees to purchase land. The cost of constructing a building of $1,850,000 and the architect’s fees of $95,000 should be capitalized as the cost of a completed factory building (i.e., $1,945,000). The following schedule summarizes the classification of capitalized costs:
|Purchase of land||$450,000||Capitalize as PP&E||Land cost|
|Cost of razing old building||$60,000||Capitalize as PP&E||Land cost|
|Payment for accrued property tax||$30,000||Capitalize as PP&E||Land cost|
|Building permit||$95,000||Capitalize as PP&E||Building cost|
|New building construction cost||$1,850,000||Capitalize as PP&E||Building cost|