Question

Falcon waste management purchased land and a warehouse for 700,000. In addition to the purchase price, Falcon made the following expenditures related to the acquisition: broker's commission, 40,000; title insurance, 8,000; miscellaneous closing costs, 11,000. Assume that Falcon decides to use the warehouse rather than demolish it. An independent appraisal estimates the fair values of the land and warehouse at 640,000 and 160,000, respectively. Determine the amounts Falcon should capitalize as the cost of the land and the building?

Answer 1

Falcon should capitalize $540,000 as the cost of the land and $160,000 as the cost of the building.

Step-by-step explanation:

To determine the amounts Falcon should capitalize as the cost of the land and the building, we need to consider the purchase price and the related expenditures. The cost of the land is determined by subtracting the fair value of the building from the total purchase price and related expenditures. In this case, the cost of the land is $700,000 - $160,000 = $540,000. The cost of the building is the fair value of the building, which is $160,000.