Samtech Manufacturing purchased land and building for $4 million. In addition to

Question

Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:

Title insurance $ 16,000 Legal fees for drawing the contract 5,000 Pro-rated property taxes for the period after acquisition 36,000 State transfer fees 4,000 Required 1 Required 2 Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $250,000 and the salvaged materials were sold for $6,000. In addition, Samtech spent s86,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in whole dollars.) Assets Initial Valuation Land Building Land improvements

Explanation / Answer

PART-1)

Solution:

Assets

Initial valuation

Land

$3,018,750

Building

$1,006,250

Land Improvements

Parking Lot

$82,000

Landscaping

$40,000

Working:

Asset

FV

Percentage of FV fair value

Initial valuation (% x 4,025,000)

Land

$3,300,000

0.75

4025000*75% = 3,018,750

Building

$1,100,000

0.25

4025000*25% = 1,006,250

$4,400,000

?

PART-2)

Cost of land

Purchase price

$4,000,000

State transfer fees

$4,000

Demolision Costs

$244,000

Title insurance

$16,000

Legal feeS

$5,000

Clearing and grading costs

$86,000

Total cost

$4,355,000

Land Improvements

Parking lot

$82,000

Landscaping

$40,000

Assets

Initial valuation

Land

$3,018,750

Building

$1,006,250

Land Improvements

Parking Lot

$82,000

Landscaping

$40,000

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