What is the total amount Fresh Veggies, Inc. (FVI) should record as the cost of the land acquisition?
The cost of the land for Fresh Veggies, Inc. (FVI) is $504,300, calculated by adding the purchase price and additional acquisition expenditures but excluding the demolition cost of the warehouse.
Understanding the Cost of Land Acquisition
Determining the Cost Components:
To calculate the cost of the land for FVI, we need to consider the various expenditures related to the acquisition process. In this case, FVI purchases land and a warehouse for $470,000. Along with the purchase price, FVI also incurs additional expenditures, including a broker's commission of $27,000, title insurance of $1,700, and miscellaneous closing costs of $5,600. These expenses are directly related to the acquisition of the land and warehouse.
Excluding Demolition Costs:
It is important to note that the cost of demolishing the warehouse, totaling $27,000, should not be included in the calculation of the cost of the land. The demolition cost is a separate expenditure incurred in preparation for building a new warehouse and does not directly contribute to the value of the land itself.
Calculating the Cost of the Land:
By summing up the purchase price of $470,000 with the additional acquisition expenditures (broker's commission, title insurance, and closing costs), we arrive at the total cost of the land for FVI. Therefore, the cost of the land acquisition for Fresh Veggies, Inc. (FVI) amounts to $470,000 + $27,000 + $1,700 + $5,600, totaling $504,300.
This comprehensive understanding of the cost components involved in the land acquisition process provides clarity on how organizations like FVI assess and record the expenses associated with acquiring land for their operations.