Fullerton Waste Management Capitalization Analysis

Fullerton Waste Management Purchased Land and Warehouse

Fullerton Waste Management purchased land and a warehouse for $800,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $50,000; title insurance, $13,000; miscellaneous closing costs, $16,000. The warehouse was immediately demolished at a cost of $38,000 in anticipation of the building of a new warehouse.

Determine the Capitalized Cost of Land and Building

Capitalized cost of land = $917,000
Capitalized cost of building = $0

Explanation:

The capitalized cost of the land is $917,000, which includes the purchase price, the broker's commission, the title insurance, the miscellaneous closing costs, and the demolition cost. The capitalized cost of the building is currently zero because it was demolished and no new one has been built yet.

Final Answer

The capitalized cost of the land is $917,000, which includes the purchase price, the broker's commission, the title insurance, the miscellaneous closing costs, and the demolition cost. The capitalized cost of the building is currently zero because it was demolished and no new one has been built yet.

Explanation:

In Business, capitalization refers to the recording of a cost as an asset, rather than an expense. This can be with regards to both physical assets and intellectual property. When Fullerton Waste Management purchased the land and warehouse, they would have been factoring in various costs for the acquisition and subsequent modifications. The capitalized cost of the land will include the purchase price of the land, the broker's commission, the cost of title insurance, the miscellaneous closing costs, and the cost of demolishing the old warehouse. So, the capitalized cost of the land is $800,000 (purchase price) + $50,000 (broker's commission) + $13,000 (title insurance) + $16,000 (miscellaneous closing costs) + $38,000 (demolition) = $917,000. Since the building was demolished, there currently is no building on the purchased land. Therefore, its capitalized cost is zero because there was no money spent to improve it. In the future, the construction cost for a new warehouse will be capitalized as the cost of the building.

Did Fullerton Waste Management capitalize the costs of land and building correctly?

Yes, Fullerton Waste Management capitalized the costs of the land and building correctly. They included all relevant expenses such as the purchase price, broker's commission, title insurance, closing costs, and demolition cost in calculating the capitalized cost of the land. Additionally, since there is currently no building on the land, the capitalized cost of the building remains at zero until a new building is constructed.

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