Fullerton Waste Management Acquisition Costs Analysis
Fullerton Waste Management Acquisition
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 cost: $6,000
The warehouse was immediately demolished at a cost of $18,000 in anticipation of the building of a new warehouse. Determine the amounts Fullerton should capitalize as the cost of the land and the building.
What are the amounts Fullerton should capitalize as the cost of the land and the building? The total cost of land is $639,000, which includes the purchase price and related acquisition costs. The cost of building is $18,000, which is the cost of demolition to make room for new construction. Explanation: When Fullerton Waste Management purchased the land and warehouse, they paid a sum of $600,000. Added to this were the expenditures related to the acquisition, which included: a broker's commission of $30,000, Title insurance amounting to $3,000 and miscellaneous closing cost of $6,000. These costs are altogether capitalized as the cost of the land. Therefore, the total cost of the land is $639,000 ($600,000 + $30,000 + $3,000 + $6,000). The cost of building is deemed separate and consists of any costs directly tied with the construction of the building. The demolition cost of the existing warehouse, $18,000, would be part of this as it is a necessary expenditure to make the land suitable for the construction of the new warehouse. Therefore, the total cost to be capitalized for the building is $18,000.