Cala Manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. The negotiated purchase price is $273,000 for the lot plus $168,000 for the old building. The company pays $44,200 to tear down the old building and $65,339 to fill and level the lot. It also pays a total of $1,495,495 in construction costs—this amount consists of $1,406,700 for the new building and $88,795 for lighting and paving a parking area next to the building. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.

Given that,

Purchase price of land = $273,000

Purchase price for old building = $168,000

Demolition cost old building = $44,200

Costs to fill and level lot = $65,339

Total cost of land:

= Purchase price of land + Purchase price for old building + Demolition cost old building + Costs to fill and level lot

= $273,000 + $168,000 + $44,200 + $65,339

= $550,539

Therefore, the journal entry is as follows:

Land A/c Dr. $550,539

Land improvements A/c Dr. $88,795

Building A/c Dr. $1,406,700

       To cash                                         $2,046,034

(To record the costs of plant assets)

b

explanation: