Question

Exercise 10-3 Acquisition costs; lump-sum acquisition (LO10-1, 10-2) Samtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance Legal fees for drawing the contract Pro-rated property taxes for the period after acquisition State transfer fees $30,000 7.000 50.000 5,400 - An independent appraisal estimated the fair values of the land and building. If purchased separately, at $3 and $1 million, respectively. Shortly after acquisition, Samtech spent $96,000 to construct a parking lot and $54,000 for landscaping Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions 2. Determine the initial valuation of each asset, assuming that immediately after acquisition. Samtech demolished the building Demolition costs were $390,000 and the salvaged materials were sold for $8,000. In addition, Samtech spent $93.000 clearing and grading the land in preparation for the construction of a new building, Complete this question by entering your answers in the tabs below.

Answer 1

1. Total Cost of Land and Building:

Cost of Purchase	$ 3,000,000
Title Insurance	30,000
Legal Fees	7,000
Ste Transfer Fees	5400
Initial Total Combined Cost of Land and Building	$ 3,042,400

Allocation of total cost to individual assets :

Asset	Fair Values	Proportion	Total Cost Allocated
Land	$ 3,000,000	0.75	$2,281,800
Building	1,000,000	0.25	760,600
	4,000,000		$ 3,042,400

Initial valuation of each asset :

Land: $ 2,281,800

Land Improvements: $ 150,000

Building : $ 760,600

2. Now there is no building, because the building has been demolished.

Initial valuation of each asset:

Land	$	$
Purchase Price		3,000,000
Title Insurance		30,000
Legal Fees		7,000
State Transfer Fees		5400
Demolition cost of building	390,000
Salvage value of scrap	(8,000)	382,000
Clearing and Grading		93,000
Total Cost of Land		3,517,400
Land Improvements
Parking Lot		96,000
Landscaping		54,000
Total Cost of Land Improvements		150,000