Question

Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory. Teradene made the following expenditures related to the acquisition of the land, building, and equipment for the factory: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1

Purchase price of the land	$	1,390,000
Demolition and removal of old building		99,000
Clearing and grading the land before construction		245,000
Various closing costs in connection with acquiring the land		61,000
Architect's fee for the plans for the new building		69,000
Payments to Maxtor for building construction		3,440,000
Equipment purchased		955,000
Freight charges on equipment		51,000
Trees, plants, and other landscaping		64,000
Installation of a sprinkler system for the landscaping		6,900
Cost to build special platforms and install wiring for the equipment		31,000
Cost of trial runs to ensure proper installation of the equipment		8,900
Fire and theft insurance on the factory for the first year of use		43,000

In addition to the above expenditures, Teradene purchased four forklifts from Caterpillar. In payment, Teradene paid $35,000 cash and signed a noninterest-bearing note requiring the payment of $89,000 in one year. An interest rate of 8% properly reflects the time value of money for this type of loan.

Required:
Determine the initial valuation of each of the assets Teradene acquired in the above transactions. (Round your answers to the nearest whole dollars.)

Assets	Initial Valuation
Land
Building
Equipment
Land Improvements
Fork Lifts
Prepaid Insurance

Answer 1

ANSWER

Asset	Intial Valuations
Land:
Purchase price	$1,390,000
Demolition and removal of old building	$99,000
Clearing and grading	$245,000
Various Closing costs in connection with acquiring of Land	$61,000
Total cost of the land	$1,795,000
Building:
Architect's fees	$69,000
Payment to Maxtor for Building Construction	$3,440,000
Total cost of the building	$3,509,000
Equipment
Purchase Price	$955,000
Freight Charges	$51,000
Cost to Build Special platforms and wire installation	$31,000
Cost of trial runs to ensure Proper installation	$8,900
Total cost of Equipment	$1,045,900
Land improvements:
Tree , Plants and other Landscaping	$64,000
Installation of Sprinkler system	$6,900
Total cost of Land Improvement	$70,900
Fork Lifts:
Cash Paid	$35,000
Non Interest bearing Note requiring the payment n One year	$89,000
Less: Interest component (89,000 *8/108)	$6,592.59
Total cost of ForkLift	$117,407.41
Prepaid insurance:	$43,000

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