Martin Buber Co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months.
The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Payment to an engineering firm was made for a land survey, $2,200, and for drawing the factory plans, $68,000. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor�s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.

All the costs incurred during the purchase, transportation, acquisition, and building of the asset should be included as part of the initial costs.

These costs are capitalized because they are incurred necessarily to bring the asset to its intended use.

Cost of Land:

Descriptions Amount

Land $400,000

Razing old building $42,000

Legal fees $1,850

Title Insurance $1,500

Salvage pieces ($6,300)

Cost of Land $439,050

Cost of Building:

Cost of Land:

Descriptions Amount

Land survey $2,200

Liability insurance $900

Contractor's bill $2,740,000

Capitalized interest $170,000

Cost of Building $2,913,100

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Question Completion:

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