Question

On February 1, 2014, Nelson Corporation purchased a parcel of land as a factory site for $280,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2014. Costs incurred during this period are listed below:
Demolition of old building $20,000
Architect's fees 35,000
Legal fees for title investigation and purchase contract 5,000
Construction costs 1,340,000
(Salvaged materials resulting from demolition were sold for $10,000.)
Nelson should record the cost of the land and new building, respectively, as:_________.
a. $305,000 and $1,365,000.
b. $290,000 and $1,380,000.
c. $290,000 and $1,375,000.
d. $295,000 and $1,375,000.

Answer 1

Answer:

d. The cost of land and building is $295,000 and $1,375,000 respectively

Explanation:

Cost of land = Purchase price + Price for demolishing old building + Legal fee on  purchase contract & investigation - Salvage value of demolished  material

Cost of land = $280,000 + $20,000 + $5,000 - $10,000

Cost of land = $305,000−$10,000

Cost of land = $295,000

Cost of building = Construction cost + Architect′ s fee

= $1,340,000 + $35,000

= $1,375,000

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