Merchant Company purchased property for a building site The

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price $ 186,000 Real estate commissions 16,100 Legal fees 1,900 Expenses of clearing the land 3,100 Expenses to remove old building 2,100 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Solution

Transaction

Property Classification

Amount

Purchase price

Land

$186,000

Real estate commissions

Land

$16,100

Legal fees

Land

$1,900

Expenses of clearing the land

Land

$3,100

Expenses to remove old building

Land

$2,100

$209,200

Portion of costs allocated to the cost of the land = $209,200

Portion of costs allocated to the cost of the building = 0