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.

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.

  • CreatedJuly 02, 2013
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