On January 6, 2014, the Eldorado Corporation purchased a tract of land for a factory site for $500,000. An existing building on the site was demolished and the new factory was completed on October 11, 2014. Additional cost data are shown below: Which of the following correctly states the cost that should be recorded for (a) the land and (b) the new building?

Question

On January 6, 2014, the Eldorado Corporation purchased a tract of land for a factory site for $500,000. An existing building on the site was demolished and the new factory was completed on October 11, 2014. Additional cost data are shown below:  Which of the following correctly states the cost that should be recorded for (a) the land and (b) the new building?

Quizplus · Accepted Answer

(a) Land should be recorded at its purchase cost of $500,000.
(b) The cost of the new building is the sum of all incurred costs relating to the construction of the building, including the cost of the land, and it is calculated as follows:
Cost of new building = Purchase cost of the land + Demolition cost + Construction cost + Legal fees + Title search fees
In this case, the cost of the building is
= $500,000 + $10,000 + $300,000 + $5,000 + $4,700
= $819,700
Therefore, the cost of the new building should be recorded as $809,000 ($819,700 - $10,700, the cost of the demolished building).

On January 6, 2014, the Eldorado Corporation Purchased a Tract