Question

For each item below, indicate how Starr Company would record it by placing the amount in the proper column.

1. Paid $100,000 for land to be used as a factory site. The company also incurred legal costs of $15,000 in connection with the purchase.

2. Paid $50,000 to clear an existing building from the property and received $12,000 for salvaged materials.

3. Cleared the land at a cost of $20,000.

4. Paid $25,000 to an architect for the factory plans.

5. Paid $3,000,000 to a contractor to build the factory. Paid $15,000 for insurance during construction period and $12,000 for insurance for first year of operations.

6. Paid $26,000 to pave parking lot. Estimated life of 20 years.

7. Paid $600,000 for manufacturing equipment, paid $6,000 for transportation costs and $5,000 for installation. Paid $500 to repair equipment that was dropped during installation.

	Land	Land Improvements	Building	Equipment	Other Asset or Expense
1
2
3
4
5
6
7
Totals

Answer 1

Cost of Land : When land has been purchased for the purpose of construction of a building, all cost incurred up to excavation for the new building are considered land cost. It includes : Purchase price, Legal Fee, Commission, Title fee, clearing of brush and trees, cost of demolition old building less proceeds from salvage sales

Cost of Land include - lan purchase price + Legal fee + cost to clear existing building + Lnad clearing cost - sales proceeds from salvage

Land Improvements are depreciable and includes ; Fences, water system, sidewalk, paving, landscaping, parking lot etc

Factory Buling cost includes : All expense incurred during construction including architect fees, contractor payment, insurance during construction period

Cost of equipment will include purchase cost, transportation and installation cost. repair cost will be expensed

Insurance cost after completion of construction will be expensed over insurance period

			Land
	Description	Land	Improvements	Building	Equipment	Other Asset	Expense
1	Land Purchase price	100,000
2	Legal fee for land purchase	15,000
3	Cost to clear an existing building	50,000
4	Received from sales salvaged materials	(12,000)
5	Cleared the land at a cost	20,000
6	Architect fee for factory plan			25,000
7	Contractor to build the factory			3,000,000
8	Insurance during construction period			15,000
9	Insurance for first year of operations.						12,000
10	Cost to pave parking lot		26,000
11	Cost of manufacturing equipment				600,000
12	Transportation costs for Equipment's				6,000
13	Installation costs for Equipment's				5,000
14	Repair expenses						500
	Totals	173,000	26,000	3,040,000	611,000	-	12,500