Question

Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:

Title insurance $22,000
Legal fees for drawing the contract 8,000
Pro-rated property taxes for the period after acquisition 42,000
State transfer fees 4,600

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $4 and $1 million, respectively. Shortly after acquisition, Samtech spent $88,000 to construct a parking lot and $46,000 for landscaping.

Required:
a. Determine the initial valuation of each asset Samtech acquired in these transactions.
b. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $310,000 and the salvaged materials were sold for $9,000. In addition, Samtech spent $85,000 clearing and grading the land in preparation for the construction of a new building.

Answer 1

Answer: LAND 3.227,680

BUILDING 806,920

LAND IMPROVEM 134,000

Step-by-step explanation:

Land 4 0.8 $ 3.227,680

Building 1 0.2 $ 806,920

5 $ 4.034,600

Land Improvement

Parking Lot $ 88,000

Lanscaping $ 46,000

Total $ 134,000

Computation Of Cost Of Land And Building

Purchase Price $ 4.000,000

Add:

Title Insurance Cost $ 22,000

Legal Fees $ 8,000

State Transfer Fees $ 4,600

Demolition of old building $ 310,000

Land Clearing Expenses $ 85,000

Less: Salvage Material $ -9,000

Total Cost Of Land $ 4.420,600