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 machinery to equip the factory
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
| |
| Purchase price of the land |
$ |
1,200,000 |
|
| Demolition and removal of old building |
|
80,000 |
|
| Clearing and grading the land before construction |
|
150,000 |
|
| Various closing costs in connection with acquiring the land |
|
42,000 |
|
| Architect's fee for the plans for the new building |
|
50,000 |
|
| Payments to Maxtor for building construction |
|
3,250,000 |
|
| Machinery purchased |
|
860,000 |
|
| Freight charges on machinery |
|
32,000 |
|
| Trees, plants, and other landscaping |
|
45,000 |
|
| Installation of a sprinkler system for the landscaping |
|
5,000 |
|
| Cost to build special platforms and install wiring for the machinery |
|
12,000 |
|
| Cost of trial runs to ensure proper installation of the machinery |
|
7,000 |
|
| Fire and theft insurance on the factory for the first year of use |
|
24,000 |
|
|
|
In addition to the above expenditures, Teradene purchased four forklifts from Caterpillar. In payment, Teradene paid $16,000 cash and signed a noninterest-bearing note requiring the payment of $70,000 in one year. An interest rate of 7% properly reflects the time value of money for this type of loan.
|
Determine the initial valuation of each of the assets Teradene acquired in the above transactions.
|
|
| Assets |
Initial valuation |
| Land |
|
| Building |
|
| Machinery |
|
| Land improvements |
|
| Fork lifts |
|
| Prepaid insurance |
|
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