On July 1,2012,Landon Co.purchased a $500,000 tract of land that is intended to be the site of a new office complex.Landon incurred additional costs and realized salvage proceeds during 2012 as follows: What would be the capitalized cost of the land?

Question

Quizplus · Accepted Answer

The capitalized cost of the land includes the purchase price plus any additional costs necessary to get the land ready for its intended use, minus any salvage proceeds received. Using this formula, we have:
$500,000 (Purchase price)
+ $50,000 (Legal fees to close the deal)
+ $25,000 (Survey and excavation costs)
+ $5,000 (Title guarantee insurance)
- $20,000 (Salvage proceeds from demolition of old building)
= $560,000
However, there is an additional cost of $20,000 for removing a hazardous waste dump on the land that is required for its intended use:
$560,000 +
$20,000 (Cost to remove hazardous waste dump)
= $580,000. Therefore, the best choice is C) $580,000.