Fullerton Waste Management: Capitalization of Land and Warehouse Cost

Calculating Capitalized Cost for Fullerton Waste Management

Fullerton Waste Management purchased land and a warehouse for $740,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $44,000; title insurance, $10,000; miscellaneous closing costs, $13,000. An independent appraisal estimates the fair values of the land and warehouse at $630,000 and $210,000, respectively.

Determine the amounts Fullerton should capitalize as the cost of the land and the building.

Final Answer:

The total capitalized cost for Fullerton Waste Management's land and warehouse is $807,000. The capitalized cost allocated to the land is $605,250, and the capitalized cost for the warehouse is $201,750.

Explanation:

When Fullerton Waste Management purchased the land and a warehouse, all costs associated with the acquisition should be capitalized and included in the cost of the assets. This includes the broker's commission, title insurance, and any miscellaneous closing costs. Therefore, we should add these costs to the purchase price to determine the total capitalized cost.

To calculate the total capitalized cost for the land and the building, we add the following:

• $740,000 (purchase price)
• $44,000 (broker’s commission)
• $10,000 (title insurance)
• $13,000 (miscellaneous closing costs)

This sums up to $807,000.

The apportion of this cost to the land and the warehouse will be based on the proportion of their individual fair values to the total fair value. The total fair value is $630,000 (land) + $210,000 (warehouse) = $840,000. Thus, the land's capitalized cost is ($630,000 / $840,000) * $807,000 = $605,250. Similarly, the warehouse's capitalized cost is ($210,000 / $840,000) * $807,000 = $201,750.