Question

Check Exercise 10-3 Acquisition costs; lump-sum acquisition (LO10-1, 10-2) 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 Legal fees for drawing the contract Pro-rated property taxes.for the period after acquisition State transfer tees $21,000 7.500 41,000 4,500 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.9 and $11 million, respectively. Shortly after acquisition, Samtech spent $87,000 to construct a parking lot and $45,000 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 $300,000 and the salvaged materials were sold for $8,500. In addition, Samtech spent $84.000 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 " Proy 7 of 14 11 Norts

Answer 1

Required 1:
	Assets	Initial valuation
	Land	$ 3,971,850
	Building	$ 1,101,650
	Land Improvements	$ 87,000
Required 2:
	Assets	Initial valuation
	Land	$ 3,971,850
	Building	$ 1,477,150
	Land Improvements	$ 87,000

ALL EXPLANATION IS GIVEN BELOW :

1)
		LAND	BUILDING	LAND IMPROVEMENTS
	Purchase Price.	$ 3,900,000	$ 1,100,000
	Title insurance	$ 21,000
	Legal fee for drawing the contract	$ 5,850   {$7500*($ 3,900,000/$ 5,000,000}	$ 1,650   {$7500*($ 1,100,000/$ 5,000,000}
	Parking Lot			$ 87,000
	Landscaping	$ 45,000
		$ 3,971,850	$ 1,101,650	$ 87,000
2)		LAND	BUILDING	LAND IMPROVEMENTS
	Purchase Price.	$ 3,900,000	$ 1,100,000
	Title insurance	$ 21,000
	Legal fee for drawing the contract	$ 5,850   {$7500*($ 3,900,000/$ 5,000,000}	$ 1,650   {$7500*($ 1,100,000/$ 5,000,000}
	Parking Lot			$ 87,000
	Landscaping	$ 45,000
	Demolition cost		$ 300,000
	Salvage value		($ 8,500)
	Clearing and grading		$ 84,000
		$ 3,971,850	$ 1,477,150	$ 87,000

  

Here, $ 5,000,000 = $ 3,900,000 + $ 1,100,0000