Pollachek Co. purchased land as a factory site for $450,000. The process of tear
ID: 2389385 • Letter: P
Question
Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building.
Explanation / Answer
Cost of Land will include all expenses incrred in making Land Ready for constrction of Buildings. So we have cost of land as Sum of : Land as a factory site $450,000 Cost of tearing down two old buildings $42,000 Legal fees $1,850 Title insurance on the property cost $1,500 Less Amount rxd for salvaged lumber and brick ($6,300) ---------------------------------------------------------------------- SO Cost of Land = $489,050 ...........................Ans (a) Cost of Building is sum of all related Capital expenses & costs for construction activity:- Land survey $2,200 Drawing the factory plans $65,000 Construction $2,740,000 Interest costs $170,000 ----------------------------------- Cost of Buildgs = $2,977,200 .....................Ans (b)