On July 1, 2018, Larkin Co. purchased a $440,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2018 as follows: Demolition of existing building on site Legal and other fees to close escrow Proceeds from sale of demolition scrap $65,000 13,500 9,400 What would be the balance in the land account as of December 31, 2018?
a) $440,000.
b) $505,000.

The balance in the land account as of December 31, 2018 woulf be $509,100.

Explanation:

Note: The data in the question are merged together. They are therefore sorted before answering the question by representing the question as follows:

On July 1, 2018, Larkin Co. purchased a $440,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2018 as follows:

Demolition of existing building on site = $65,000

Legal and other fees to close escrow = $13,500

Proceeds from sale of demolition scrap = $9,400

What would be the balance in the land account as of December 31, 2018?

The explanation to the answer is now given as follows:

The balance in the land account as of December 31, 2018 can be calculated using the following formula:

Balance in the land account as of December 31, 2018 = Purchase price + Demolition of existing building on site + Legal and other fees to close escrow - Proceeds from sale of demolition scrap (1)

Substituting the relevant values from the question into equation (1), we have:

Balance in the land account as of December 31, 2018 = $440,000 + $65,000 + $13,500 - $9,400 = $509,100

Therefore, the balance in the land account as of December 31, 2018 woulf be $509,100.

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