Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures

Question

Samtech Manufacturing purchased land and a building for $4 million. In addition to the purchase price, Samtech incurred the following expenditures related to the acquisition of the land and building:

Title insurance: $25,000  
Legal fees for drafting the contract: $9,500  
Pro-rated property taxes for the period after acquisition: $45,000  
State transfer fees: $4,900

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3 million and $2 million, respectively. Shortly after the acquisition, Samtech spent $91,000 to construct a parking lot and $49,000 on landscaping.  
Required:
1. Determine the initial valuation of each asset Samtech acquired in these transactions.
2. Recalculate the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs amounted to $340,000, and the salvaged materials were sold for $5,500. Additionally, Samtech spent $88,000 clearing and grading the land in preparation for constructing a new building.

Miss Cydney Upton DDS · Accepted Answer

1)total price $4,000,000if purchased separately, land was worth $3,500,000 and building $1,500,000.cost of land: 70% x $4,000,000 purchase cost = $2,800,00070% x $34,000 title insurance = $23,80070% x $9,000 legal fees = $6,30070% x $5,800 state transfer fees = $4,060total cost of land = $2,834,160 cost of building:30% x $4,000,000 purchase cost = $1,200,00030% x $34,000 title insurance = $10,20030% x $9,000 legal fees = $2,70030% x $5,800 state transfer fees = $1,740total cost of land = $1,214,640Property taxes for the period after acquisition are expenses and cannot be capitalized. Landscaping and parking lots are reported separately because they have different useful lives than the building. 2)cost of land:$4,000,000 purchase cost $34,000 title insurance $9,000 legal fees $5,800 state transfer fees $430,000 demolition costs- $6,500 sale of salvaged value$97,000 land gradingtotal cost of land = $4,569,300cost of building = $0Property taxes for the period after acquisition are expenses and cannot be capitalized. Landscaping and parking lots are reported separately because they have different useful lives than the building.

Miss Penelope Treutel · Answer

The calculation is shown below:-Explanation:1. Value to be capitalized $4,000,000 + $16,000 + $5,000 + $4,000= $4,025,000Assets Â  Â  Â  Â  Â  Â  Â Fair value Â  Â  Â  Total percentage Â  Â  Â  Proportional valueLand Â  Â  Â  Â  Â  Â  $3,300,000 Â  Â  Â  Â  Â  Â  75% Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â $2,475,000 Building Â  Â  Â  Â  $1,100,000 Â  Â  Â  Â  Â  Â  25% Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â $275,000total Â  Â  Â  Â  Â  Â  Â  $4,400,000 Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  $2,750,000Working Note :-For Land = ($3,300,000 Ã· $4,400,000) = 75%For Building = ($1,100,000 Ã· $4,400,000) = 25%Land Improvement = $82,000 + $40,000= $122,0002. Purchase cost Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  $4,000,000Add: Title insurance Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  $16,000Add: Legal fees for drawing the contract Â $5,000Add: State transfer fee Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â $4,000Add: Demolition cost Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â $250,000Add: Cleaning and grading cost Â  Â  Â  Â  Â  Â  Â  Â  $86,000Less: Salvage material Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  $6,000Cost of land Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  Â  $4,355,000 Land Improvement = $82,000 + $40,000= $122,000

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Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures

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