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Exercise 10-3 (Algo) Acquisition costs; lump-sum acquisition [LO10-1, 10-2] Samtech Manufacturing purchased land and a building for $4 million. In addition to the purchase price,
Exercise 10-3 (Algo) Acquisition costs; lump-sum acquisition [LO10-1, 10-2]
Samtech Manufacturing purchased land and a 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 | $ 19,000 |
---|---|
Legal fees for drawing the contract | 6,500 |
Pro-rated property taxes for the period after acquisition | 39,000 |
State transfer fees | 4,300 |
An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.7 and $1.3 million, respectively. Shortly after acquisition, Samtech spent $85,000 to construct a parking lot and $43,000 for landscaping.
Required:
- Determine the initial valuation of each asset Samtech acquired in these transactions.
- Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $280,000 and the salvaged materials were sold for $7,500. In addition, Samtech spent $82,000 clearing and grading the land in preparation for the construction of a new building.
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