Exercise NO: 2

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

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.

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The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300.

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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.

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Instructions

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Determine the cost of the land and the cost of the building as they should be recorded on the books of

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Martin Buber Co. Assume that the land survey was for the building.

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