On February 1, 2016, Edwards Corporation purchased a parcel of land as a factory site for $ 100,000. It demolished an old building on the property and began construction on a new building that was completed on October 2, 2016. Costs incurred during this period are:
Demolition of old building............... $ 8,000
Architect’s fees................... 25,000
Legal fees for title investigation and purchase contract.... 4,000
Construction costs................ 650,000
Edwards sold salvaged materials resulting from the demolition for $ 2,000.
Required:
1. At what amount should Edwards record the cost of the land and the new building, respectively?
2. If management misclassified a portion of the building’s cost as part of the cost of the land, what would be the effect on the financial statements?