How to Determine the Initial Cost of Land for Fresh Veggies, Inc. (FVI)
What is the total initial cost of land for Fresh Veggies, Inc. (FVI) based on the given data?
The cost of the land of FVI (Fresh Veggies, Inc.) will be $543,600.
Explanation:
- Purchase price of land: $480,000
- Broker's commission: $28,000
- Title insurance: $1,800
- Miscellaneous closing costs: $5,800
- Cost of demolishing warehouse: $28,000
The amount FVI should record as the cost of the land is calculated as follows:
Cost of Land = Purchase price of land + Broker's commission + Title insurance + Miscellaneous closing costs
Cost of Land = $480,000 + $28,000 + $1,800 + $5,800
Cost of Land = $515,600
The cost of demolishing the warehouse is not included in the cost of land. Therefore, the final cost of the land would be:
$515,600 (Cost of Land) + $28,000 (Cost of demolishing warehouse) = $543,600
Hence, the amount FVI should record as the cost of the land is $543,600.