Cost of Land Calculation for Fresh Veggies, Inc.
How can we determine the amount Fresh Veggies, Inc. should record as the cost of the land?
What expenditures are included in the cost of the land for Fresh Veggies, Inc.?
Answer
The cost of the land for Fresh Veggies, Inc. is calculated by subtracting the expenditures related to the acquisition and the cost of demolishing the warehouse from the purchase price.
To determine the cost of the land for Fresh Veggies, Inc., we need to subtract the broker's commission, title insurance, miscellaneous closing costs, and the cost of demolishing the warehouse from the purchase price of $420,000.
The calculations are as follows:
Purchase price: $420,000Broker's commission: $22,000
Title insurance: $1,200
Miscellaneous closing costs: $4,400
Cost of demolishing the warehouse: $22,000
Therefore, the cost of the land for Fresh Veggies, Inc. is $420,000 - $22,000 - $1,200 - $4,400 - $22,000 = $392,400.