On December 1, 2005, East Co. purchas ed a tract of land as a fa ctory site for

Question

On December 1, 2005, East Co. purchas ed a tract of land as a fa ctory site for $300,000. The old building on the property was razed and salvaged materials resul ting from demolition were sold. Additional costs incurred and sal vage proceeds realized during December 2005 were as follows: Cost to raze old building $25,000 Legal fees for purchase contra ct and to record ownership 5,000 Title guarantee insurance 6,000 Proceeds from sale of salvaged materials 4,000 In East's December 31, 2005 Balance Sheet, what amount should b e reported as land?

Explanation / Answer

Land When a land is purchased then the price paid to buy the property should be debited

to land account. Other expenditures such as commission to agents, brokerage fees, legal

fees, clearing cost are also debited to land. Land is having unlimited life so it is not

depreciated.

Cost of land reported by East's Co. is as follows:

S.No Cost Incurred Amount Debited/credited to 1 Purchased a tract of land 3,00,000 Land Account 2 Cost to raze old building 25,000 Land Account 3 Legal fees for purchase contract and to record ownership 5,000 Land Account 4 Title guarantee insurance 6,000 Land Account 5 Proceeds from sale of salvaged materials -4,000 Land Account Total 3,32,000

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