January 2010, 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 Land?

Question

January 2010, 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 Land?

Quizplus · Accepted Answer

The amount that should be recorded for Land includes the purchase price of the tract of land ($3,000,000) minus the appraised value of Building 2 ($742,000), the salvage value of Building 2 ($75,000), the value of Land Improvements 1 ($400,500), and any additional costs incurred.

Purchase price of tract of land: $3,000,000
Less:
Appraised value of Building 2: -$742,000
Salvage value of Building 2: -$75,000
Value of Land Improvements 1: -$400,500

Net value of land: $1,782,500

Since the tract of land is valued at $2,020,600 without the buildings and improvements, the additional costs incurred by Giant Green must be $2,516,600 ($2,020,600 + $496,000):

Net value of land: $1,782,500
Additional costs incurred: +$496,000

Total amount recorded for Land: $2,516,600

January 2010, Giant Green Company Pays $3,000,000 for a Tract