Cullumber Company purchases land for $185000 cash. Cullumber assumes $5200 in property taxes due on the land. The title and attorney fees totaled $3100. Cullumber has the land graded for $4100. They paid $25000 for paving of a parking lot. What amount does Cullumber record as the cost for the land?

The answer is

$197,400.

Explanation:

The cost of acquisition of an asset (land) is the non-depreciable costs associated with the acquisition of the land, because land is considered as an asset that does not depreciate. The costs that make up the cost of acquiring a land includes the normal, reasonable and necessary expenditures associated with the land to obtain it and get it ready for use. These include the agreed upon cash price, repair and reconditioning costs, title fees, legal fees, zoning fees and survey fees. On the there are costs of improvements made on the land and this is not part of acquisition costs because these improvements depreciate with time, and they are recorded in the cost of improvement account which takes depreciation into consideration. Example of these costs include parking lots, irrigation systems etc.

Hence in this case, all the expenditures except the cost of paving a parking lot are recorded as cost of acquisition of the land, and these include:

cost of purchase         = $185,000

property taxes             = $    5,200

title and attorney fees = $    3,100

cost of grading             = $    4,100

Total                              = $197,400

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