In purchasing some land, the Maxim Company made payments for the following: Purc
ID: 2593469 • Letter: I
Question
In purchasing some land, the Maxim Company made payments for the following:
Purchase price
$4,000
Past due taxes
320
Title search
150
Cost of razing old building
200
Interest (incurred after productive
operations had begun)
120
Proceeds from salvage of old building
75
The recorded cost of the land should be
a.
$4,350
b.
$4,595
c.
$4,685
d.
$4,760
Purchase price
$4,000
Past due taxes
320
Title search
150
Cost of razing old building
200
Interest (incurred after productive
operations had begun)
120
Proceeds from salvage of old building
75
Explanation / Answer
Answer is B
Interest paid after production operations has begun to be charged to income statement as revenue expenditure.
Interest till commencement of production is charged to cost of asset.
Particulars Amt Purchase Price 4,000.00 Past due taxes 320.00 Tittle Search 150.00 Cost of razing old building 200.00 Proceeds from savlage of old building (75.00) cost of land recorded 4,595.00