Cost: The cost is defined as any amount incurred by the company to acquire the asset and get the asset to set in place and ready for use. Any expenditures that are not included as part of the cost of the equipment are expenses and the other costs that are included are capitalized. Requirement 1: Determine the cost of land and building.

Question

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price Real estate commissions Legal fees Expenses of clearing the land Expenses to remove old building What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? Multiple Choice $181,300 to Land; $20,800 to Building. $196,800 to Land; $1,500 to Building. $195,500 to Land; $5,300 to Building. $199,300 to Land; $0 to Building. $ 180,000 15,500 1,300 2,500 1,500 $200,800 to Land; $0 to Building.

Answer 1

Question

Chapter 7, Problem 45E

To determine

Concept introduction:

Cost:

The cost is defined as any amount incurred by the company to acquire the asset and get the asset to set in place and ready for use. Any expenditures that are not included as part of the cost of the equipment are expenses and the other costs that are included are capitalized.

Requirement 1:

Determine the cost of land and building.

To determine

Concept introduction:

Cost:

The cost is defined as any amount incurred by the company to acquire the asset and get the asset to set in place and ready for use. Any expenditures that are not included as part of the cost of the equipment are expenses and the other costs that are included are capitalized.

Requirement 2:

If management wrongly includes a portion of building cost as part of the cost of land then what would be the effect on the financial statements.

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