Cost of Land and Building Acquisition by Rumpke Waste & Recycling

What are the amounts that Rumpke Waste & Recycling should capitalize as the cost of the land and the building?

Capitalized Cost of Land

$735,000

Capitalized Cost of Building

$234,000

Final answer: Rumpke should capitalize $735,000 as the cost of the land and $234,000 as the cost of the building.

Explanation

Rumpke Waste & Recycling purchased land and a warehouse in Columbus, Ohio for $680,000. In addition to the purchase price, Rumpke made the following expenditures related to the acquisition: real estate broker's commission, $38,000; title insurance, $7,000; closing costs, $10,000. An independent appraisal estimates the fair values of the land and warehouse at $546,000 and $234,000, respectively.

To determine the amounts Rumpke should capitalize as the cost of the land and building, we need to consider the purchase price and the related expenditures. The capitalized cost of the land is the total purchase price ($680,000) plus the real estate broker's commission, title insurance, and closing costs ($38,000 + $7,000 + $10,000), which is $735,000. The capitalized cost of the building is the fair value of the building according to the appraisal ($234,000).

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