Question

Marshall Corporation bought land and a building for $1,012,500. They made the purchase with the intent of using the site for a factory. Marshall tore down the building at a cost of $90,000 and sold scrap from the tear-down for $10,365. Additional costs related to this property include:

• Attorney fees for the title search                         $ 3,915
• Title insurance cost 2,700
• Architect fees                                                        35,100
• Excavation costs                                                   11,745
• Contractor costs 3,150,000
• Liability insurance during construction                    2,925
• Assessment by the city for pavement                 191,250

What is the cost of the land?

Answer 1

Cost of the land will be $ 1,290,000

Calculation is shown below:

Type of cost	Amount	Considered for calculation of land cost	Explanation
Purchase cost	$        1,012,500	Yes	Land & building were purchased with the intention to use site for factory. So intention was to use it as a land, hence this cost will be wholly considered towards cost of land
Cost to tear down building	$              90,000	Yes	Tear down of building is done so as to build new factory on land. This will increase the usefulness of land, new factory can be built on this land so it ill be included in the cost of land
Attorney fees for title search	$                3,915	Yes	This expense is in relation to title search of land so it will be included in cost of land. Title search is in relation to land and is being always done before purchase of land
Title insurance cost	$                2,700	Yes	This is one-time expense to cover the loss of title as long as interest is held in the property. This is in association to acquisition of land hence it will be debited to the cost of land
Architect fess	$              35,100	No	Architect fees is in relation to construction and not for land
Excavation cost	$              11,745	No	Excavation is done to laid the foundation of construction. It is not related to acquisition of land
Contractor cost	$        3,150,000	No	Contractor is hired for construction. Not related to acquisition of land
Liability insurance during construction	$                2,925	No	Expense done on construction is not related to acquisition of land
Assessment by city for pavement	$            191,250	Yes	Special assessments levied by government should be included in the cost of land as it increases its utility and market worth.
Total	$        1,300,365
Less: Sale of scrap	$              10,365	Yes	Amount realized from sale of scrap of tear down of building will be adjusted in the cost as expense of tear down of building is considered as cost of land. Net cost will be added to the cost of land after giving effect of related receipts
Cost of Land	$        1,290,000