On January 2 of the current year, Vaughn, Inc. acquired land for $ 2,000,000 to be used to construct a new service and repair center. The closing costs amounted to $ 110,000 and Vaughn paid $ 20,000 for the current period’s property taxes. There was an existing structure on the land that had been abandoned for several years. Vaughan agreed to remove the building and dispose of any scrap materials. The demolition cost was $ 67,000 and the company was required to pay $ 13,800 to remove the debris. Vaughn was able to sell scrap materials for $ 4,500.
Required
a. Determine the cost of the land and any expenses incurred during the acquisition.
b. Prepare the journal entries necessary to record the amount of costs capitalized and the costs charged to expense related to the property’s acquisition. Assume that all expenditures were made in cash.