Fresh Veggies, Inc. Land Acquisition Costs

Fresh Veggies, Inc. Land Acquisition

Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $490,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $29,000; title insurance, $1,900; and miscellaneous closing costs, $6,000. The warehouse is immediately demolished at a cost of $29,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land. FVI acquires land and a warehouse for $490,000, with additional costs incurred for broker's commission, title insurance, and miscellaneous closing costs. These costs total $36,900. The warehouse, bought as part of the acquisition, is demolished immediately at a cost of $29,000.

Answer:

$555,900

Explanation: To determine the FVI amount that should be recorded, all closing costs must be added to the initial purchase price of the land.

Cost of Land = Purchase Price + Broker's Commission + Title Insurance + Closing Costs + Demolition Cost

Cost of Land = $490,000 + $29,000 + $1,900 + $6,000 + $29,000 = $555,900

What is the total amount FVI should record as the cost of the land?

$555,900

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