Question

S9-1 Determining the cost of an asset Highland Clothing purchased land, paying $96,000 cash and signing a $300.000 payable. In addition, Highland paid delinquent property tax of $1,100, title in costing $600, and $4,600 to level the land and remove an unwanted building the journal entry for purchase of the land.

Answer 1

Step 1 - The cost associated with the land in order to make the land into use is included in the cost of land. For example, property tax, title insurance and expenses to level the land is included in the cost of acquisition of land.

Step 2 - Therefore, the property tax of $1,100, title insurance costing $600, and $4,600 to level the land and remove an unwanted building should be added to the original cost of land of $396,000. Therefore, the total cost of land should be as follows:

Total Cost of land = Original Cost of Land + Property Tax + Title Insurance + Cost to level the land and remove an unwanted building = $396,000 + $1,100 + $600 + $4,600 = $402,300

Total Cost of land has been paid as under:

Note payable issued = $300,000

Cash paid = $96,000 + $1,100 + $600 + $4,600 = $102,300

Step 3 - Journal Entry for the purchase of land

Land Dr $402,300

To Cash $102,300

To Note Payable $300,000

(Being purchase of land with cash and note payable recorded)