Determining the Amounts to be Capitalized for Land and Building

How can Falcon Waste Management determine the amounts to be capitalized for the land and building?

What expenditures should be considered in determining the cost to be capitalized?

Determination of Capitalization Amounts:

Falcon Waste Management should capitalize $355,000 as the cost of the land and $190,000 as the cost of the building.

When Falcon Waste Management purchased the land and warehouse for $630,000, they made additional expenditures related to the acquisition. These expenditures include broker's commission ($33,000), title insurance ($4,500), and miscellaneous closing costs ($7,500).

When deciding on the amounts to be capitalized, Falcon should consider the purchase price along with the related expenditures. The purchase price of $630,000 needs to be allocated between the land and the building based on their respective fair values. An independent appraisal estimated the fair values of the land and warehouse to be $474,500 and $255,500, respectively.

To calculate the amounts to be capitalized, Falcon can use the following formula:

Cost to be capitalized = Purchase price / (Fair value of land + Fair value of building) * Fair value of respective asset

Using this formula, Falcon should capitalize $355,000 as the cost of the land and $190,000 as the cost of the building. This ensures that the proper allocation is made based on the fair values of the assets.