Cost Capitalization: Falcon Waste Management's Optimistic Acquisition

To determine the amounts Falcon Waste Management should capitalize as the cost of the land and the building in their recent acquisition, we need to consider the purchase price and additional expenditures related to the acquisition. Falcon Waste Management purchased land and a warehouse for $600,000, and made additional expenditures including broker’s commission, title insurance, and miscellaneous closing costs.

Calculating the Cost of the Land:

The cost of the land should be determined by adding the purchase price and the related expenditures. Therefore, the total cost of the land would be:

Purchase Price + Broker’s Commission + Title Insurance + Miscellaneous Closing Costs = Total Cost of the Land

$600,000 + $30,000 + $3,000 + $6,000 = $639,000

Calculating the Cost of the Building:

The cost of the building should be determined by the fair value estimate given by an independent appraisal, which is $280,000.

Falcon Waste Management should capitalize $639,000 as the cost of the land and $280,000 as the cost of the building in their recent acquisition. By leveraging the existing warehouse rather than demolishing it, Falcon has made a wise investment that aligns with their long-term goals.