Giant Green Company pays $3,000,000 for a tract of land with two buildings on it.It plans to demolish Building 1 and build a new store in its place.Building 2 will be a company office; it is appraised at $742,000,with a useful life of 25 years and a $75,000 salvage value.A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $400,500 that are expected to last another 18 years with no salvage value.Without the buildings and improvements,the tract of land is valued at $2,020,600.Giant Green also incurs the following additional costs:

-What is the amount that should be recorded for the tract of land?

Question

Giant Green Company pays $3,000,000 for a tract of land with two buildings on it.It plans to demolish Building 1 and build a new store in its place.Building 2 will be a company office; it is appraised at $742,000,with a useful life of 25 years and a $75,000 salvage value.A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $400,500 that are expected to last another 18 years with no salvage value.Without the buildings and improvements,the tract of land is valued at $2,020,600.Giant Green also incurs the following additional costs:

-What is the amount that should be recorded for the tract of land?

Quizplus · Accepted Answer

The amount recorded for the tract of land should include the cost of the land itself ($3,000,000) plus the value of the land improvements ($400,500) that are expected to last another 18 years. Since Building 1 will be demolished, its cost should not be included. The appraised value of Building 2 ($742,000) should also not be included, but its useful life and salvage value should be taken into account. Therefore, the amount recorded for the tract of land should be $3,000,000 + $400,500 - [$742,000/25 years x (7 years)] - $75,000 = $2,516,600.

Giant Green Company Pays $3,000,000 for a Tract of Land