Fullerton Waste Management Land and Building Acquisition Analysis

Fullerton Waste Management Land and Building 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 costs, $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.

In accordance with the given scenario and calculations, Fullerton Waste Management should capitalize the cost of the land as $639,000 ($600,000 purchase price + $30,000 broker's commission + $3,000 title insurance + $6,000 closing costs), and the cost of the building as $280,000 (the independent appraisal value).

Explanation

In accounting, the cost of acquiring land includes not only the purchase price but also any expenses directly associated with obtaining and preparing the land for its intended use. By capitalizing the cost of the land at $639,000 and the building at $280,000, Fullerton accurately represents the investment made in these assets on its financial statements.

Assumption: Fullerton decides to use the warehouse

An independent appraisal estimates the fair values of the land and warehouse at $420,000 and $280,000, respectively.