Brief Exercise 10-2: Acquisition Cost for Land and Building
Calculating Falcon Waste Management's Acquisition Costs
Falcon Waste Management recently purchased land and a warehouse for a total of $790,000. In addition to the purchase price, Falcon incurred various expenditures related to the acquisition:
- Broker's commission: $49,000
- Title insurance: $12,500
- Miscellaneous closing costs: $15,500
The warehouse was also immediately demolished at a cost of $37,000 in preparation for the construction of a new warehouse. Let's determine the amounts Falcon should capitalize as the cost of the land and the building.
Final Answer:
Falcon Waste Management should capitalize $753,000 as the cost of the land and $37,000 as the cost of the building.
Explanation:
In order to calculate the capitalization costs for Falcon Waste Management, we need to take into account the purchase price and the additional expenditures from the acquisition:
- The purchase price of the land and warehouse is $790,000.
- Additional expenditures:
- Broker's commission: $49,000
- Title insurance: $12,500
- Miscellaneous closing costs: $15,500
To calculate the cost of the land, we subtract the cost of the demolished warehouse from the total purchase price:
Cost of the land = Purchase price - Cost of demolished warehouse
Cost of the land = $790,000 - $37,000 = $753,000
Similarly, to calculate the cost of the building, we subtract the cost of the land from the total purchase price:
Cost of the building = Purchase price - Cost of the land
Cost of the building = $790,000 - $753,000 = $37,000
What are the amounts Falcon Waste Management should capitalize as the cost of the land and the building? Falcon Waste Management should capitalize $753,000 as the cost of the land and $37,000 as the cost of the building.