Martin Buber Co. purchased land as a factory site for $997,600. The process of t

Question

Martin Buber Co. purchased land as a factory site for $997,600. The process of tearing down two old buildings on the site and constructing the factory required 6 months.

The company paid $104,748 to raze the old buildings and sold salvaged lumber and brick for $15,712. Legal fees of $4,614 were paid for title investigation and drawing the purchase contract. Martin Buber paid $5,487 to an engineering firm for a land survey, and $169,592 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $3,741, and a liability insurance premium paid during construction was $2,245. The contractor’s charge for construction was $6,833,560. The company paid the contractor in two installments: $2,992,800 at the end of 3 months and $3,840,760 upon completion. Interest costs of $423,980 were incurred to finance the construction.

Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buberk Co. Assume that the land survey was for the building.

Cost of the Land: $____ ?

Cost of the Building: $____ ?

Explanation / Answer

The costs would be allocated as below: Land Building Land 997600 Razing costs 104748 Salvage -15712 Legal fees 4614 Survey 5487 Plans 169592 Title insurance 3741 Liability insurance 2245 Construction 6833560 Interest               423980 1094991 7434864

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