Samtech Manufacturing purchased land and building for $4million. In addition to the purchase price, Samtech made thefollowing expenditures in connection with the purchase of the landand building:
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| Title insurance | $ | 34,000 | |
| Legal fees for drawing the contract | | 9,000 | |
| Pro-rated property taxes for the period after acquisition | | 54,000 | |
| State transfer fees | | 5,800 | |
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An independent appraisal estimated the fair values of the land andbuilding, if purchased separately, at $3.5 and $1.5 million,respectively. Shortly after acquisition, Samtech spent $100,000 toconstruct a parking lot and $58,000 for landscaping.
Required:
1. Determine the initial valuation of each assetSamtech acquired in these transactions.
2. Determine the initial valuation of each asset,assuming that immediately after acquisition, Samtech demolished thebuilding. Demolition costs were $430,000 and the salvaged materialswere sold for $6,500. In addition, Samtech spent $97,000 clearingand grading the land in preparation for the construction of a newbuilding.
