Soccer Wholesale Acquisition: Optimistic Outlook on Land Cost
How can Soccer Wholesale determine the cost of the land?
What expenditures should be considered in determining the cost of the land for Soccer Wholesale?
Soccer Wholesale's Cost of Land Determination
The amount Soccer Wholesale should report as the cost of the land is $0. To determine the cost of the land for Soccer Wholesale, we need to consider the purchase price of the land and warehouse, as well as the additional expenditures related to the acquisition.
When it comes to determining the cost of the land for Soccer Wholesale, we need to take into account various expenditures incurred during the acquisition process. These expenditures include the purchase price, commission to the sales agent, title insurance, miscellaneous closing costs, and the cost of demolishing the warehouse.
The purchase price of $740,000 covers both the land and the warehouse. However, it is essential to separate the cost of the land from the cost of the warehouse to accurately reflect the financial position of Soccer Wholesale.
Breaking down the expenditures involved:
- Commission to sales agent: $49,800
- Title insurance: $3,500
- Miscellaneous closing costs: $8,900
These expenditures are considered part of the acquisition costs and should be added to the purchase price. By totaling the acquisition costs, which include the commission, title insurance, and closing costs, we get $62,200.
Subtracting the cost of demolishing the warehouse from the total acquisition costs:
Total acquisition costs - Cost of demolishing the warehouse = $62,200 - $89,300 = -$27,100
Since the cost of demolishing the warehouse exceeds the total acquisition costs, the resulting value is negative. Therefore, Soccer Wholesale should report the cost of the land as $0, highlighting a fresh start and potential for new growth opportunities.