On-Time Delivery Company acquired an adjacent lot to construct a new warehouse, paying $26,000 in cash and giving a short-term note for $321,000. Legal fees paid were $1,955, delinquent taxes assumed were $10,300, and fees paid to remove an old building from the land were $23,000. Materials salvaged from the demolition of the building were sold for $5,200. A contractor was paid $1,054,900 to construct a new warehouse.

Question

Determine the cost of the land to be reported on the balance sheet.

Answer 1

To determine the cost of the land to be reported on the balance sheet, we need to consider all the relevant costs associated with acquiring and preparing the land for its intended use.

Here's a breakdown of the costs incurred:

1. Purchase Price of the Land:

   • Cash paid: $26,000
   • Note payable: $321,000
   • Total purchase price: $26,000 + $321,000 = $347,000

2. Legal Fees: $1,955

3. Assumed Delinquent Taxes: $10,300

4. Costs to Remove Old Building: $23,000

5. Proceeds from Salvaged Materials: $5,200 (this will reduce the overall cost)

Now, let's sum these costs to compute the total cost of the land:

\[ \text{Total Cost of Land} = \text{Total Purchase Price} + \text{Legal Fees} + \text{Delinquent Taxes} + \text{Building Removal Costs} - \text{Salvage Proceeds} \]

Substituting the values:

\[ \text{Total Cost of Land} = 347,000 + 1,955 + 10,300 + 23,000 - 5,200 \]

Calculating this step by step:

1. Adding up the costs:

   • \(347,000 + 1,955 = 348,955\)
   • \(348,955 + 10,300 = 359,255\)
   • \(359,255 + 23,000 = 382,255\)

2. Subtracting the salvage proceeds:

   • \(382,255 - 5,200 = 377,055\)

Therefore, the total cost of the land to be reported on the balance sheet is $377,055.