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

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: Title insurance $ 25,000 Legal fees for drawing the contract 9,500 Pro-rated property taxes for the period after acquisition 45,000 State transfer fees 4,900 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3 and $2 million, respectively. Shortly after acquisition, Semtech spent $91,000 to construct a parking lot and $49,000 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 $340,000 and the salvaged materials were sold for $5,500. In addition, Semtech spent $88,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in whole dollars.)

Explanation / Answer

1.

Working:

Note: The pro-rated property taxes for the period after acquisition $45000 are not included in the cost of acquisition of the land and building but are expensed out over the period for which paid.

Note: The cost to construct a parking lot $91000 and the cost of landscaping $49000 is considered under land improvement.

2.

Working:

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