Semtech Manufacturing purchased land and building for $4 million. In addition to
ID: 2472670 • Letter: S
Question
Semtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:
An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.2 and $1.8 million, respectively. Shortly after acquisition, Semtech spent $86,000 to construct a parking lot and $44,000 for landscaping.
Determine the initial valuation of each asset Semtech acquired in these transactions. (Enter your answers in whole dollars.)
2.
Determine the initial valuation of each asset, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were $290,000 and the salvaged materials were sold for $8,000. In addition, Semtech spent $83,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in whole dollars.)
Title insurance $ 20,000 Legal fees for drawing the contract 7,000 Pro-rated property taxes for the period after acquisition 40,000 State transfer fees 4,400
An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.2 and $1.8 million, respectively. Shortly after acquisition, Semtech spent $86,000 to construct a parking lot and $44,000 for landscaping.
Required: 1.Determine the initial valuation of each asset Semtech acquired in these transactions. (Enter your answers in whole dollars.)
2.
Determine the initial valuation of each asset, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were $290,000 and the salvaged materials were sold for $8,000. In addition, Semtech spent $83,000 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 improvementsExplanation / Answer
1)
Purchase price
$4,000,000
Title insurance
20,000
Legal fees
7,000
State transfer fees
4,400
Total cost
4,,031,400
Note: property taxes will be expensed
The total is allocated to the land and building based on their relative fair values:
Asset
Fair value
%
Allocated
Land
3,200,000
64%
2,580,096
Building
1,800,000
36%
1,451,304
5,000,000
$4,031,400
Assets:
Land
$2,580,096
Building
1,451,304
Land improvement
Parking lot
86,000
Landscaping
44,000
(2)
Cost of land:
Purchase price
4,000,000
Title search and insurance
20,000
Legal fees
7,000
State transfer fees
4,400
Demolition of old building 290,000
Less:Sale of materials -8,000
282,000
Clearing and grading costs
83,000
Total cost of land
4,396,400
Land improvements:
Parking lot
86,000
Landscaping
44,000
Purchase price
$4,000,000
Title insurance
20,000
Legal fees
7,000
State transfer fees
4,400
Total cost
4,,031,400
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