Total Cost Calculation for Land Purchase by Fresh Veggies, Incorporated

Fresh Veggies, Incorporated (FVI) Land Purchase and Expenditures

Fresh veggies, incorporated (FVI), purchases land and a warehouse for $450,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $25,000; title insurance, $1,500; and miscellaneous closing costs, $5,200. The warehouse is immediately demolished at a cost of $25,000 in anticipation of building a new warehouse.

The total cost of the land and related expenditures is $481,700. FVI should record this total cost in its accounting records as the cost of the land purchased.

Cost Calculation and Purchase Recording for FVI

To determine the cost of the land and record the purchase for Fresh Veggies, Incorporated (FVI), follow these steps:

Step 1. Start with the total purchase price of land and warehouse: $450,000.

Step 2. Add related expenditures:

  • Broker's commission: $25,000
  • Title insurance: $1,500
  • Miscellaneous closing costs: $5,200

Step 3. Sum the amounts from step 2: $25,000 + $1,500 + $5,200 = $31,700.

Step 4. Add the amount from step 3 to the purchase price from step 1: $450,000 + $31,700 = $481,700. This is the total cost for land and warehouse.

Step 5. Subtract the demolition cost of the warehouse: $481,700 - $25,000 = $456,700.

The cost of the land is $456,700. To record the purchase, assuming cash was paid for all expenditures, make the following journal entry:

Debit Land: $456,700
Credit Cash: $456,700

What is the total cost of the land and related expenditures for FVI's purchase? How should FVI record this cost in its accounting records?

The total cost of the land and related expenditures for FVI's purchase is $481,700. FVI should record this total cost by debiting the Land account with $456,700 and crediting the Cash account with $456,700.

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