Question

The Italian Pizza Company purchased land as a factory site for $73,000. Prior to construction of the new building, the land had to be cleared of trees and brush. Construction costs incurred during the first year are listed below: Land clearing costs Sale of firewood to a worker Architect fees (for new building) Title investigation of land Property taxes on land (for the first year) Building construction costs $ 3,300 (570) 13,000 1,800 1,300 230,000 Required: Determine the amounts that the company should record in the land and the new building accounts. (Amounts to be deducted should be indicated by a minus sign.) Land Building Totals

Answer 1

Computation ($)

Costs incurred Land Building Purchase price of Land 73000 Land clearing costs 3300 Sale of firewood to worker (570) Architect fees 13000 Legal fees (title investigation) 1800 Building construction costs 230,000 TOTAL 77530 243000

Property taxes for first year $ 1300 will be recorded as revenue expenditure, hence cannot be capitalised.