21 Real Angus Steakhouse purchased land for 75000 cash They

21. Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date For what amount should Real Angus Steakhouse record the land? A. $83,500 B. $84,300 C. $85,300. D.$75,000

Solution

Answer)

My answer is option (B).

The reason is here when we purchase a asset any payment that need not recur after certain period can be capitalized. Here, commission for purchase of that particular asset need not be rescued and hence capitalized. Similarly, Title insurance is taken for protection of owner against any financial loss caused due to defects in title at time of purchase and hence need to be capitalized. But when it comes to property tax it needs to be paid after certain period. However, the property tax paid on behalf of seller can be treated as payment to seller and hence except that $1000 which is due after date of purchase need not be capitalized but all other costs must be capitalized.need to be capitalized.