Question

You are the project manager at Janson Manufacturing. Feedback from the annual employee’s survey revealed that employees were interested in having a fitness center. Thus, last week, you closed the deal and purchased land and a building for $6 million. Other expenses 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 the individual fair value estimates. The land appraised at $5.5 million and the building at $1.9 million.

Spending on the property started right away. Janson installed fences and completed the driveway at a cost of $45,000 and $75,000, respectively.

1. What is the initial valuation of each asset Janson purchased in these transactions?
2. Suppose Janson, immediately after acquiring the property, decided to tear down the building. The cost of the removal of the building was $350,000 and salvaged materials sold for $8,000. An additional $100,000 was paid to grade the land for building the new fitness center. What is the initial valuation of each asset Janson acquired in this transaction?

Cost of land and building: Cost $0 Total cost Initial Value Percentfl Valuation $0 $0 0% 0% $0 $0 Assets: $0 $0 $0 $0 Land improvements: Cost of land: ltems $0 $0 $0 $0 Total cost of land Land improvements:

Answer 1

1	Cost of Land and Building
	Items	Cost
	Purchase Price of land and Building	$6,000,000
	Attorney fee for the contract	$10,000
	Commissions	$55,000
	Title Insurance	$8,500
	Pro-rated Property Taxes	$75,000
	Total Cost	$6,148,500
	Asset	Fair Value	Percent of Total Fair value	Initial Valuation
	Land	$5,500,000	74%	$4,569,831
	Building	$1,900,000	26%	$1,578,669
	Total	$7,400,000		$6,148,500
	Assets:
	Land	$4,569,831
	Building	$1,578,669
	Land Improvements:
	Fences	$45,000
	Driveway	$75,000
2	Cost of Land
	Items		Cost
	Purchase Price of land and Building		$6,000,000
	Attorney fee for the contract		$10,000
	Commissions		$55,000
	Title Insurance		$8,500
	Pro-rated Property Taxes		$75,000
	Cost of removal of building	$350,000
	Less: Salvage material sale	($8,000)	$342,000
	Grading the land		$100,000
	Total Cost of land		$6,590,500
	Land Improvements:
	Fences	$45,000
	Driveway	$75,000