Question

Sarasota Co. purchased land as a factory site for $600,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $63,000 to raze the old buildings and sold salvaged lumber and brick for $9,450. Legal fees of $2,775 were paid for title investigation and drawing the purchase contract.Sarasota paid $3,300 to an engineering firm for a land survey, and $102,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $2,250, and a liability insurance premium paid during construction was $1,350. The contractor's charge for construction was $4,110,000. The company paid the contractor in two installments: $1,800,000 at the end of 3 months and $ 2,310,000 upon completion. Interest costs of $ 255,000 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Sarasota Co. Assume that the land survey was for the building Cost of the Land $ Cost of the Building $

Answer 1

Sarasota Co.
Calculation of Cost of Land and Building

Land Amount paid Add: Cost of demolishing Factory Less:Lumber and brick salvaged and sold

$ 63000 9450

$. 6,00,000 53550 _______ 546450

land cost = 546450 + legal fees 2775 $ +land survey $ 3300 + factory plans 102,000 = 654525 $

cost of building	$
title insurance	2250
liability insurance premium	1350
Contractor's charge	4110000
Contractor's installments - 1	1800000
Contractor's installments - 2	2310000
Interest charges	255000
factory plans	102000
total cost of building	8580600