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 $16.000 Legal fees for drawing the contract 5,000 Pro-rated property taxes for the period after acquisition 36,000 State transfer fees 4.000 010-2 An independent appraisal estimated the fair values of the land and building, if nurchased separately, a n d Su million, respectively. Shortly after acquisition, Samtech spent $2.000 to construct a parking lot and 10.00 for landscaping Required: Determine the initial valuation of each asset Samtech acquired in these transactions 2. Repeat requirement I, assuming that immediately after acquisition, Samtech demolished the building. Dem. olition costs were $250,000 and the salvaged materials were sold for $6.000. In addition, Samtech spent 586,000 clearing and grading the land in preparation for the construction of a new building.

Answer 1

Answer is given below

Cost of Land and Building Cost of purchase Title Insurance Legal Fees State Transfer fees Total Cost $4,000,000 $16,000 $5,000 $4,000 $4,025,000 Property taxes for the period after acquisition is not part of cost of Land and Building Allocation of Total cost of Land and Buidling based on fair value Fair value proportion Total Cost Land $3,300,000 0.75 $3,018,750 Building $1,100,000 0.25 $1,006,250 $4,400,000 $4,025,000 $3,018,750 $1,006,250 Initial Valuation of each asset Land Building Land Improvements Parking Lot Landscaping $82,000 $40,000 Cost of Land Purchase price Title Insurance Legal Fees State Transfer fees Demolition of Building Salvage value of scrap Clearing and grading Total Cost of Land $4,000,000 $16,000 $5,000 $4,000 $250,000 $6,000 $244,000 $86,000 $4,355,000 Land Improvements Parking Lot Landscaping Total Cost of Land Improvements $82,000 $40,000 $122,000 Since Buidling is demolished Only Land will be valued in 2 abvoe Demolition cost is taken net of Salvage value of scrap