Fresh Veggies, Incorporated: Determining Land Cost and Recording Purchase
Introduction
Steps to Determine Land Cost and Record Purchase
Step 1: Identify Costs
To determine the cost of the land, we need to identify all costs associated with the purchase: - Purchase price: $530,000 - Broker's commission: $33,000 - Title insurance: $2,300 - Miscellaneous closing costs: $6,600Step 2: Allocate Costs
Since the warehouse was demolished immediately, its value is considered to be $0. Therefore, the entire cost of $530,000 is allocated to the land.Step 3: Account for Demolition Cost
The cost of demolishing the warehouse was $33,000. This cost is added to the total land cost as it was necessary for preparing the land for the new warehouse.Step 4: Record Journal Entries
The journal entries for recording the purchase are as follows: Land Account: Debit: $605,900 (Purchase price + Broker's commission + Title insurance + Miscellaneous closing costs + Demolition cost) Cash Account: Credit: $605,900Conclusion
In summary, the cost of the land for FVI is $605,900, and the journal entry to record the purchase includes a debit to the Land account and a credit to the Cash account for the same amount.What are the steps involved in determining the cost of the land and recording the purchase for Fresh Veggies, Incorporated (FVI)?
The steps involved in determining the cost of the land and recording the purchase for FVI include identifying all costs, allocating costs between the land and warehouse, accounting for demolition costs, and recording journal entries for each transaction.