Question

Fullerton Waste Management purchased land and a warehouse for $760,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $46,000; title insurance, $11,000; miscellaneous closing costs, $14,000. 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 $731,000 and $129,000, 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

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		a	b	a*b
	Appraised Value	Ratio	Total Cost	Assigned Cost
Cost of Land	$            731,000	0.85	$831,000	$         706,350
Cost of Building	$            129,000	0.15	$831,000	$         124,650
Total	$            860,000			$         831,000
Total Cost:
Purchase Cost	$            760,000
Commission	$              46,000
Title Insurance	$              11,000
Misc Costing	$              14,000
Total Cost	$            831,000