Question

Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory. Teradene made the following expenditures related to the acquisition of the land, building, and equipment for the factory:
Purchase price of the land $1,350,000
Demolition and removal of old building 95,000
Clearing and grading the land before construction 225,000
Various closing costs in connection with
acquiring the land 57,000
Architect's fee for the plans for the new building 65,000
Payments to Maxtor for building construction 3,400,000
Equipment purchased 935,000
Freight charges on equipment 47,000
Trees, plants, and other landscaping 60,000
Installation of a sprinkler system for the landscaping 6,500
Cost to build special platforms and install
wiring for the equipment 27,000
Cost of trial runs to ensure proper
installation of the equipment 8,500
Fire and theft insurance on the factory
for the first year of use 39,000
In addition to the above expenditures, Teradene purchased four forklifts from Caterpillar. In payment, Teradene paid $31,000 cash and signed a noninterest-bearing note requiring the payment of $85,000 in one year. An interest rate of 8% properly reflects the time value of money for this type of loan.
Required:
Determine the initial valuation of each of the assets Teradene acquired in the above transactions.

Answer 1

Answer:

Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory. Teradene made the following expenditures related to the acquisition of the land, building, and equipment for the factory:

Purchase price of the land $1,350,000

Demolition and removal of old building 95,000

Clearing and grading the land before construction 225,000

Various closing costs in connection with

acquiring the land 57,000

Architect's fee for the plans for the new building 65,000

Payments to Maxtor for building construction 3,400,000

Equipment purchased 935,000

Freight charges on equipment 47,000

Trees, plants, and other landscaping 60,000

Installation of a sprinkler system for the landscaping 6,500

Cost to build special platforms and install

wiring for the equipment 27,000

Cost of trial runs to ensure proper

installation of the equipment 8,500