Fresh Veggies, Inc.: Determining the Cost of Land

How much should Fresh Veggies, Inc. record as the cost of the land?

What are the expenses related to the acquisition of the land and warehouse by Fresh Veggies, Inc.?

Answer:

The amount Fresh Veggies, Inc. should record as the cost of the land is $405,000.

Fresh Veggies, Inc. (FVI) had purchased land and a warehouse for $400,000. Along with the purchase price, FVI incurred additional expenses related to the acquisition.

These expenses include a broker's commission of $20,000, title insurance costing $1,000, and miscellaneous closing costs amounting to $4,000. These expenses directly contribute to the acquisition of the land and warehouse, thereby increasing the total acquisition cost.

After totaling the acquisition costs, which sum up to $425,000, FVI took a further step by demolishing the warehouse at a cost of $20,000. This demolition action was done in preparation for building a new warehouse, but it is not classified as a cost related to acquiring the land.

By subtracting the demolition cost from the total acquisition cost, we arrive at the final figure that Fresh Veggies, Inc. should record as the cost of the land, which is $405,000.