Fullerton Waste Management Acquisition Cost Analysis

What were the expenditures made by Fullerton Waste Management related to the acquisition of land and a warehouse?

Fullerton Waste Management made the following expenditures related to the acquisition: broker’s commission, $41,000; title insurance, $8,500; miscellaneous closing costs, $11,500. The warehouse was also immediately demolished at a cost of $29,000 in anticipation of the building of a new warehouse.

How much should Fullerton capitalize as the cost of the land and the building?

Fullerton Waste Management should capitalize $742,000 as the cost of the land and the building.

Expenditures Related to Acquisition

Fullerton Waste Management made several expenditures in relation to the acquisition of land and a warehouse. These include:

• Broker’s commission: $41,000
• Title insurance: $8,500
• Miscellaneous closing costs: $11,500
• Cost of demolishing the warehouse: $29,000

Capitalization of Cost

To determine the amounts that should be capitalized as the cost of the land and the building, we need to consider the purchase price and the related expenditures. The total amount spent on the acquisition was $771,000 ($710,000 + $41,000 + $8,500 + $11,500).

However, the cost of demolishing the warehouse should not be capitalized as part of the building. Therefore, after deducting the warehouse demolition cost from the total acquisition cost, Fullerton should capitalize $742,000 as the cost of the land and the new building.

Detail Explanation

Fullerton Waste Management purchased land and a warehouse for $710,000 and incurred additional expenditures related to the acquisition. The total of these expenditures was $61,000 ($41,000 + $8,500 + $11,500).

After deducting the cost of demolishing the warehouse, which should not be included in the building's cost, the total amount that should be capitalized as the cost of the land and the new building is $742,000.

It is crucial for companies to properly account for the costs related to acquisitions to ensure accurate financial reporting and decision-making.