Question

Fullerton Waste Management purchased land and a warehouse for $710,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $41,000; title insurance, $8,500; miscellaneous closing costs, $11,500. Assume that Fullerton decides to use the warehouse rather than demolish it. An independent appraisal estimates the fair values of the land and warehouse at $486,000 and $324,000, respectively.

Determine the amounts Fullerton should capitalize as the cost of the land and the building.

Capitalized Cost of Land = ?

Capitalized Cost of Building = ?

Answer 1

Capitalized Cost of Land	462600
Capitalized cost of building	308400
Workings:
Cost of land and building:
Purchase price	710000
Broker’s commission	41000
Title insurance	8500
Miscellaneous closing costs	11500
Total cost	771000
Land fair value	486000
Building fair value	324000
Total fair value	810000
Amount allocated to Land	462600	=771000/810000*486000
Amount allocated to Building	308400	=771000/810000*324000