Merchant Company purchased property for a building site. The costs associated with the property were: $\begin{array}{lr}
\text { Purchase price } & \$ 185,000 \
\text { Real estate commissions } & 15,000 \
\text { Legal fees } & 700 \
\text { Expenses of clearing the land } & 2,000 \
\text { Expenses to remove old building } & 4,000
\end{array}$
What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Question

Merchant Company purchased property for a building site. The costs associated with the property were: $\begin{array}{lr}
\text { Purchase price } & \$ 185,000 \
\text { Real estate commissions } & 15,000 \
\text { Legal fees } & 700 \
\text { Expenses of clearing the land } & 2,000 \
\text { Expenses to remove old building } & 4,000
\end{array}$
 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Quizplus · Accepted Answer

All costs associated with acquiring the land and preparing it for its intended use, including purchase price, commissions, legal fees, clearing, and removal of old buildings, are capitalized as land costs.

Merchant Company Purchased Property for a Building Site What Portion of These Costs Should Be Allocated to the Associated