Fullerton Waste Management purchased land and a warehouse for $600,000. In addit

Question

Fullerton Waste Management purchased land and a warehouse for $600,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $30,000; title insurance, $3,000; miscellaneous closing costs, $6,000. Assume that Fullerton decides to use the warehouse rather than demolish it. An independent appraisal estimates the fair values of the land and warehouse at $420,000 and $280,000, respectively.

Determine the amounts Fullerton should capitalize as the cost of the land and the building.
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Explanation / Answer

Purchase cost= 600000+30000+3000+6000= 639000 Capitalized cost of land =639000/(420000+280000)*420000= 383400 Capitalized cost of building =639000/(420000+280000)*280000= 255600

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