Reference no: EM132771806
Question - Pharoah Corp. purchased land with two old buildings on it as a factory site for $464,000. The property tax assessment (that is, assessed value) on this property was $357,000: $259,000 for the land and the rest for the buildings. It took six months to tear down the old buildings and construct the factory.
The company paid $62,700 to raze the old buildings and it sold salvaged copper, lumber, and brick for $6,600. Legal fees of $1,890 were paid for title search and drawing up the purchase contract. Payment to an engineering firm was made for a land survey, $2,700, and for drawing the factory plans, $87,600. The land survey had to be made before final plans could be drawn. The liability insurance premium that was paid during construction was $900. The contractor's charge for construction was $3,700,000. The company paid the contractor in two instalments: $1,160,000 at the end of three months and $2,540,000 upon completion. The architects and engineers estimated the cost of the building to be 55% attributable to the structure, 35% attributable to the HVAC services (heating, ventilation, air conditioning), and the remainder attributable to the roof structure, as each of these elements is expected to have a different useful life. Interest costs of $170,000 were incurred to finance the construction.
Required - Determine the land and building costs as they should be recorded on the books of Pharoah Corp. Assume that the land survey was for the building.
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