Question

On January 1, 2018, Carriage Corporation purchased a parcel of land to be used as a retail store site. An old building on the property was immediately demolished and construction began on a new store that was completed on November 1, 2018. Costs incurred on the construction project are listed below $320,000 12,000 30,700 4,100 850,000 16,000 14,000 13,900 9,600 39,000 5,000 4,000 15,000 2,000 2,200 6, 500 18,000 3,000 Capitalized interest during construction . . . . .. . . . . . . . Imputed interest based on stock financing .. . . . . . . . Landfill for land site . .. .. . . . .. . . . . . . . . .. . Clearing of trees from site . . . . . . . .. . . . . . . . Temporary buildings used for construction activities . Injury to worker during construction of building. .. .. . Excavation for foundation for the new store . . . . . . . Cash proceeds from sale of salvaged materials from demolition Insurance on building during construction .. . .. . . . . . . . Delinquent property taxes paid to acquire the land site City property tax assessment for water and sewer . . Cash proceeds from sale of timber .. . . . . . .. . REQUIRED: 1) List the items from above that would be included in the cost of the land and calculate the total cost of the land Not all items listed above may be needed. Show your work! 2) List the items from above that would be included in the cost of the new store building and calculate the total cost of the building. Not all items listed above may be needed. Show your work!

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Answer #1

All that cost that has been incurred to acquire the asset would be capitalized and will be included in the cost of the asset that has been purchased.

The main question that arises here is that till what point the cost would need to be included.

This means that if we are buying a machine that has to be installed in our factory than what will that point of time till when we will take the cost that has been incurred to buy that machine.

As per the general rule book all that cost that has been incurred and is concerned with buying an asset or transfer of title will be included in the cost of the asset.

So any cost that has been spent to buy an asset will be included in the cost of asset. This means that any cost that has been incurred after the asset has been purchased or been installed in our site will not to be included in the cost of that particular asset.

Purchase price of land   320000

Legal fees            4100

Delinquent property taxes          6500

Total cost of land             330600

In calculating the total cost for stores, only that cost has been included that has been deemed to be the most necessary one and without such cost the making of store is not possible.

Total cost for stores

Architect fees    30700

Construction cost             850000

Capitalized interest during construction 16000

Landfill 13900

Clearing of Trees'             9600

Land survey fees              4000

Foundation cost               15000

Insurance cost for construction 2200

Sale of timber    -3000

Total     938400

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