Determine the Initial Cost of Land for Fresh Veggies, Inc.
What is the initial cost of land for Fresh Veggies, Inc.?
Cost of land: $455,100
The cost of land for Fresh Veggies, Inc. should be recorded as $455,100. To determine the cost of the land, we need to consider the purchase price of the land and direct costs directly attributable to the acquisition.
Explanation:
Purchase Price: The purchase price of the land and warehouse is $530,000.
Expenditures: Additional expenditures related to the acquisition include broker's commission, title insurance, and miscellaneous closing costs. The total of these expenses is $33,000 (commission) + $2,300 (insurance) + $6,600 (closing costs) = $41,900.
Demolition Cost: The cost of demolishing the warehouse is $33,000.
To calculate the cost of the land, we exclude the costs associated with demolishing the warehouse, as those expenses are not directly related to the land itself.
Cost of land formula:
Cost of land = Purchase price of land and warehouse - Cost of demolishing the warehouse - Broker's commission - Title insurance - Miscellaneous closing costs
Plugging in the numbers, we get:
Cost of land = $530,000 - $33,000 - $33,000 - $2,300 - $6,600 = $455,100
Therefore, Fresh Veggies, Inc. should record the cost of the land as $455,100.