Shamrock Co. purchased land as a factory site for $456,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months.

The company paid $47,880 to raze the old buildings and sold salvaged lumber and brick for $7,182. Legal fees of $2,109 were paid for title investigation and drawing the purchase contract. Shamrock paid $2,508 to an engineering firm for a land survey, and $77,520 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,710, and a liability insurance premium paid during construction was $1,026. The contractor’s charge for construction was $3,123,600. The company paid the contractor in two installments: $1,368,000 at the end of 3 months and $1,755,600 upon completion. Interest costs of $193,800 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 Martin Buberk Co. Assume that the land survey was for the building.

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Cost of Land Recorded on The Book of Martin Buberk Co.

Particular  Amount ($)

Cost of land456,000

Add-company paid to raze the old building($47,880-$7,182)40,698

Add-Title insurance on the property cost1,710

Add-Legal fees paid2,109

Total cost of land500,517

Cost of Building Recorded on the Book of Martin Buberk Co.

Particular  Amount ($)

Cost of drawing the factory plans77,520

Add-Land survey cost2,508

Add-Liability insurance premium paid during construction1,026

Add-contractor’s charge for construction3,123,600

Add-Interest cost193,800

Total cost of building3,398,454

We simply applied the above format

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