Giesen Corp. purchased land with two old buildings on it as a factory site for $460,000. The property tax assessment on this property was $350,000: $250,000 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 $50,000 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 up the purchase contract. Payment to an engineering firm was made for a land survey, $2,200, and for drawing the factory plans, $82,000. The land survey had to be made before final plans could be drawn. The liability insurance premium that was paid during construction was $900. T he contractor’s
charge for construction was S3,640,000. The company paid the contractor in two instalments: $1,200,000 at the end of three months and $2,440,000 upon completion. The architects and engineers estimated the cost of the building to be 55% attributable to the structure, 35% attributable to the building 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.
Determine the land and building costs as they should be recorded on the books of Giesen Corp. Assume that the land survey was for the building.