Falcon Waste Management: Acquisition Cost Analysis

When Falcon Waste Management purchased land and a warehouse for $700,000, they also incurred additional expenses related to the acquisition. These expenses include a broker's commission of $40,000, title insurance of $8,000, and miscellaneous closing costs of $11,000.

To determine the amounts Falcon should capitalize as the cost of the land and the building, we need to consider the fair values of the land and warehouse, as well as the purchase price and related expenditures.

Cost of the Land:

The cost of the land is calculated by subtracting the fair value of the building from the total purchase price and related expenditures. In this case, the fair value of the land is $640,000 and the fair value of the building is $160,000.

Hence, the cost of the land is $700,000 - $160,000 = $540,000.

Cost of the Building:

As per the independent appraisal, the fair value of the building is $160,000. Therefore, Falcon should capitalize $160,000 as the cost of the building.