Glant Green Company pays $2,700,000 for a tract of land with two buildings on it

Question

Glant Green Company pays $2,700,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $712,000, with a useful life of 25 years and a $72,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $370,500 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,720,600. Giant Green also incurs the following additional costs: $370,200 Cost to demolish bullding 1 Cost of additional land grading Cost to construct new building (bullding 3), having a useful life of 25 years and a $292,000 salvage velue Cost of new land improvements (land improvements 2) near building2 having a 20 3,551,000 119,000 r useful life and no salvage value What is the amount that should be recorded for Land? O $2.197460 O$1720,60o $3.551.000 $1657260 O $2.700,000

Explanation / Answer

Value of total transaction price allocated to Land=2700000/(712000+370500+1720600)*1720600= $1657460 Amount recorded for Land = 1657315+370200+170000= $2197460 Option 1 is correct

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