On July 1, 2013, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2013 as follows: What would be the balance in the land account as of December 31, 2013?

Question

On July 1, 2013, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2013 as follows:  What would be the balance in the land account as of December 31, 2013?

Quizplus · Accepted Answer

The initial purchase cost of the land is $400,000.
Additional costs incurred during the year are: 
Survey fees: $4,000
Title search and insurance: $2,000
Real estate commission: $16,000
Total additional costs = $22,000

Salvage proceeds received during the year are: 
Sale of trees: ($2,000)
Total salvage proceeds = ($2,000)

Therefore, the balance in the land account as of December 31, 2013, would be:
$400,000 (initial purchase cost) + $22,000 (additional costs) - $2,000 (salvage proceeds) = $420,000
However, the land is also revalued as of December 31, 2013, at its appraised value of $477,000.
Therefore, the balance in the land account as of December 31, 2013, will be: 
$477,000 (appraised value)