How Falcon Waste Management Capitalize Land and Building Cost?
What expenditures did Falcon Waste Management make related to the land and building acquisition?
Falcon Waste Management purchased land and a warehouse for $750,000. In addition to the purchase price, Falcon made the following expenditures: broker's commission, $45,000; title insurance, $10,500; miscellaneous closing costs, $13,500.
What are the fair values of the land and building according to an independent appraisal?
The fair values of the land and building are $680,000 and $170,000, respectively.
Expenditures and Fair Values
Falcon Waste Management made additional expenditures of $45,000 for broker's commission, $10,500 for title insurance, and $13,500 for miscellaneous closing costs in addition to the $750,000 purchase price for the land and warehouse.
An independent appraisal estimated the fair values of the land and building at $680,000 and $170,000, respectively.
Capitalization of Land and Building Cost
Based on the data provided, Falcon Waste Management should capitalize $655,200 as the cost of the land and $163,800 as the cost of the building.
The total cost of the land and building acquisition is $750,000 + $45,000 + $10,500 + $13,500 = $819,000.
To determine the capitalization amounts, the fair value of the land ($680,000) is multiplied by the total cost ($819,000) and divided by the sum of the fair values of the land and building ($680,000 + $170,000).
Therefore, Falcon should capitalize $655,200 as the cost of the land and $163,800 as the cost of the building.