Question

Question ID: STFAR2021

On April 1, West Co. purchased a tract of land as a factory site for $500,000. An old building on the site was razed, and materials salvaged from the demolition were sold. Additional costs incurred and salvage proceeds realized during April were as follows:

DescriptionAmount
Costs to raze old building$60,000
Legal fees for purchase contract and to record ownership12,000
Title guarantee insurance14,000
Proceeds from sale of salvaged materials9,000

On its April 30 balance sheet, what amount should West report as land?

a. $526,000
b. $551,000
c. $577,000
d. $586,000


Solution

Correct answer: c.

All costs relating to the land purchase, including the cost of razing the old building less any cash received from the sale of salvaged items while the land is being readied for use, should be assigned to the land account. West should report $577,000 as land cost:

DescriptionAmount
Cost of factory site$500,000
Costs to raze old building60,000
Legal fees for purchase contract and to record ownership12,000
Title guarantee insurance14,000
Proceeds from sale of salvaged materials(9,000)
Total land cost$577,000