Cost of Land Acquisition for Fresh Veggies, Incorporated (FVI)
What are the expenditures related to the acquisition of land and a warehouse for Fresh Veggies, Incorporated (FVI)?
Calculate the total cost of the land acquisition for FVI.
Expenditures Related to Acquisition:
Purchase Price: $490,000
Broker's Commission: $29,000
Title Insurance: $1,900
Miscellaneous Closing Costs: $6,000
Immediate Demolition Cost of Warehouse: $29,000
Total Cost of Land Acquisition:
The total cost of the land acquisition for Fresh Veggies, Incorporated (FVI) is $527,900.
When Fresh Veggies, Incorporated (FVI) purchases land and a warehouse for $490,000, there are several expenditures related to the acquisition in addition to the purchase price. These expenditures include the broker's commission of $29,000, title insurance of $1,900, and miscellaneous closing costs of $6,000. The warehouse is immediately demolished at a cost of $29,000 in anticipation of building a new warehouse.
To determine the total cost of the land acquisition, we add up the purchase price and all additional expenditures. In this case, the total cost amounts to $490,000 (purchase price) + $29,000 (broker's commission) + $1,900 (title insurance) + $6,000 (miscellaneous closing costs) = $527,900.
However, it's important to note that the immediate demolition cost of the warehouse at $29,000 is not relevant for determining the cost of the land. This cost is associated with the future construction of a new warehouse and is separate from the land acquisition costs.
When recording the purchase of the land, we would debit the Land account for the total cost of $527,900 and credit the Cash account for the same amount, assuming that cash was paid for all expenditures. This journal entry accurately reflects the cost of the land acquisition, including the purchase price and additional expenditures incurred.
The Land account is debited to increase its value and represent the cost of acquiring the land, while the Cash account is credited to reflect the outflow of cash in exchange for the land. This ensures that the financial records accurately capture the cost and transaction involved in acquiring the land for FVI.