On January 6, Year 1, Mount Jackson Corporation purchased a tract of land for a factory site for $770,000. An existing building on the site was demolished and the new factory was completed on October 11, Year 1. Additional cost data are shown below: Which of the following are the capitalized costs of the land and the new building, respectively?

Question

On January 6, Year 1, Mount Jackson Corporation purchased a tract of land for a factory site for $770,000. An existing building on the site was demolished and the new factory was completed on October 11, Year 1. Additional cost data are shown below:  Which of the following are the capitalized costs of the land and the new building, respectively?

Quizplus · Accepted Answer

The capitalized cost of the land is the original cost of the land plus any additional costs incurred to make the land ready for its intended use. In this case, the only additional cost incurred was the cost of demolishing the existing building. Therefore, the capitalized cost of the land is $770,000 + $72,400 = $842,400 (Option A is correct).

The capitalized cost of the new building includes the cost of construction, any additional costs incurred during construction (such as interest costs), and any other costs directly related to getting the building ready for its intended use. In this case, the cost of the new building is $915,000, and there were no additional costs incurred during construction or other costs directly related to getting the building ready for its intended use. Therefore, the capitalized cost of the new building is $915,000 + $70,000 = $985,000 (Option A is correct).

On January 6, Year 1, Mount Jackson Corporation Purchased a Tract