Problem: Samtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:
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Title insurance
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$35,000
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Legal fees for drawing the contract
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9,500
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Pro-rated property taxes for the period after acquisition
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55,000
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State transfer fees
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5,900
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An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.6 and $1.2 million, respectively. Shortly after acquisition, Samtech spent $101,000 to construct a parking lot and $59,000 for landscaping.
Assignment Requirement:
Question 1: Determine the initial valuation of each asset Samtech acquired in these transactions.
Question 2: Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $440,000 and the salvaged materials were sold for $7,000. In addition, Samtech spent $98,000 clearing and grading the land in preparation for the construction of a new building.
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