Reference no: EM13999440
Semtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:
Title insurance ..................$16,000
Legal fees for drawing the contract ...........$5,000
Pro-rated property taxes for the period after acquisition ....$36,000
State transfer fees .................$4,000
An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.3 and $1.1 million, respectively. Shortly after acquisition, Semtech spent $82,000 to construct a parking lot and $40,000 for landscaping.
Required:
1. Determine the initial valuation of each asset Semtech acquired in these transactions.
2. Repeat requirement 1, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were $250,000 and the salvaged materials were sold for $6,000. In addition, Semtech spent $86,000 clearing and grading the land in preparation for the construction of a new building.
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