Real Angus Steakhouse purchased land for $75,000 cash.They also incurred commissions of $4,500,property taxes of $5,000,and title insurance of $800.The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date.For what amount should Real Angus Steakhouse record the land?

Question

Quizplus · Accepted Answer

Real Angus Steakhouse should record the land at its cost, which includes the purchase price, commissions, property taxes, and title insurance.

Purchase price: $75,000 
Commissions: + $4,500 
Title insurance: + $800

Total cost before property taxes: $80,300

However, out of the $5,000 in property taxes paid, $4,000 were for back taxes paid by Real Angus on behalf of the seller and should not be included in the cost of the land. The remaining $1,000 was due for the current year after the purchase date and is included in the cost of the land.

Total cost including property taxes: $81,300

Therefore, Real Angus Steakhouse should record the land for $84,300 ($80,300 + $1,000 + $3,000).

Real Angus Steakhouse Purchased Land for $75,000 Cash