Brief Exercise 10-2: Acquisition Cost for Land and Building

Calculating Falcon Waste Management's Acquisition Costs

Falcon Waste Management recently purchased land and a warehouse for a total of $790,000. In addition to the purchase price, Falcon incurred various expenditures related to the acquisition:

• Broker's commission: $49,000
• Title insurance: $12,500
• Miscellaneous closing costs: $15,500

The warehouse was also immediately demolished at a cost of $37,000 in preparation for the construction of a new warehouse. Let's determine the amounts Falcon should capitalize as the cost of the land and the building.

Final Answer:

Falcon Waste Management should capitalize $753,000 as the cost of the land and $37,000 as the cost of the building.

Explanation:

In order to calculate the capitalization costs for Falcon Waste Management, we need to take into account the purchase price and the additional expenditures from the acquisition:

• The purchase price of the land and warehouse is $790,000.
• Additional expenditures:
  • Broker's commission: $49,000
  • Title insurance: $12,500
  • Miscellaneous closing costs: $15,500

To calculate the cost of the land, we subtract the cost of the demolished warehouse from the total purchase price:

Cost of the land = Purchase price - Cost of demolished warehouse

Cost of the land = $790,000 - $37,000 = $753,000

Similarly, to calculate the cost of the building, we subtract the cost of the land from the total purchase price:

Cost of the building = Purchase price - Cost of the land

Cost of the building = $790,000 - $753,000 = $37,000