Determine Cost of Land and Record Purchase for Fresh Veggies, Incorporated

Fresh Veggies, Incorporated (FVI) purchases land and a warehouse for $600,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition:

• Broker's commission: $40,000
• Title insurance: $3,000
• Miscellaneous closing costs: $8,000

The warehouse is immediately demolished at a cost of $40,000 in anticipation of building a new warehouse. To determine the cost of the land and record the purchase (assuming cash was paid for all expenditures), we follow these steps:

Determination of Cost of Land:

To determine the cost of the land, we need to add up all the costs associated with the acquisition:

• Purchase price: $600,000
• Broker's commission: $40,000
• Title insurance: $3,000
• Miscellaneous closing costs: $8,000

Total: $651,000

We then subtract the cost of demolishing the warehouse, since this cost is not related to the land:

• Cost of acquisition: $651,000
• Less: Cost of demolishing warehouse: $40,000

Cost of land: $611,000

For recording the purchase, we would debit Land for $611,000 and credit Cash for the same amount, since cash was paid for all expenditures.

What are the steps to determine the cost of land after purchasing it along with a warehouse and incurring related expenditures?

To determine the cost of the land, we add up all the costs associated with the acquisition, subtract the cost of demolishing the warehouse, and arrive at the final cost of the land, which is $611,000 in this case.