Martin Buber Co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Martin Buber paid $2,200 to an engineering firm for a land survey, and $68,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.
Instructions
Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buber Co. Assume that the land survey was for the building

Cost of land is $439,050.

Cost of the building is $2,981,100.

Explanation:

Computation of Cost of the Land

Particular                  Amount

Land                           $400,000

Add: Razing               $42,000

Add: Legal fees          $1,850

Add: Insurance           $1,500

Add: Salvage              $6,300  

Cost of the land         $439,050

Hence, the cost of land is $439,050.

Computation of Cost of the Building

Particular                                               Amount

Survey                                                    $2,200

Add: Drawing the factory plan             $68,000

Add: Liability insurance premium         $900

paid during construction

Add: Contractor's charge for constr.    $2,740,000

Add: Interest cost                                   $170,000    

Cost of the building                               $2,981,100

Hence the Cost of the building is $2,981,100.  

The cost of the land and the cost of the building that should be recorded on the books of Martin Buber Co. is: $439,050; $2,981,000.

a. Cost of the Land

Land                      $400,000

Cost of Razing        $35,700

($42,000-$6,300)

Legal fees                 $1,850

Insurance                  $1,500

Total cost of land   $439,050

b.  Cost of  Building

Drawing the factory plan            $68,000

Survey                                          $2,200

Liability insurance premium        $900

Cost of Contraction                     $2,740,000

Interest cost                                 $170,000    

Total cost of the building            $2,981,100

Inconclusion the cost of the land and the cost of the building that should be recorded on the books of Martin Buber Co. is: $439,050; $2,981,000.

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answer; ///(c) i believe its it ignores cash flows following the payback period;