Option #1: Acquisition Costs: Land andBuilding
You are the project manager at Janson Manufacturing. Feedbackfrom the annual employee’s survey revealed that employees wereinterested in having a fitness center. Thus, last week, you closedthe deal and purchased land and a building for $6 million. Otherexpenses incurred in connection to this purchase included:
| Attorney fees for the contract | $10,000 |
| Commissions | 55,000 |
| Title insurance | 8,500 |
| Pro-rated Property taxes | 75,000 |
An independent appraisal was requested to determine theindividual fair value estimates. The land appraised at $5.5 millionand the building at $1.9 million.
Spending on the property started right away. Janson installedfences and completed the driveway at a cost of $45,000 and $75,000,respectively.
Required:
- What is the initial valuation of each asset Janson purchased inthese transactions?
- Suppose Janson, immediately after acquiring the property,decided to tear down the building. The cost of the removal of thebuilding was $350,000 and salvaged materials sold for $8,000. Anadditional $100,000 was paid to grade the land for building the newfitness center. What is the initial valuation of each asset Jansonacquired in this transaction?
Answers must be submitted in an Excel file showing allcalculations used to arrive at the final answers. Provide commentson the spreadsheet to explain the rationale for the amountsrecorded.
