Concept explainers
A company paid $326,000 for property that included land, land improvements, and a building. The land was appraised at $175,000, the land improvements were appraised at $70,000, and the building was appraised at $105,000. What is the allocation of property costs to the three assets purchased?
- a. Land, $150,000; Land Improvements, $60,000; Building, $90,000
- b. Land, $163,000; Land Improvements, $65,200; Building, $97,800
- c. Land, $150,000; Land Improvements, $61,600; Building, $92,400
- d. Land, $159,000; Land Improvements, $65,200; Building, $95,400
- e. Land, $175,000; Land Improvements, $70,000; Building, $105,000
Ascertain the allocation of property costs to the three assets purchased.
Explanation of Solution
Lump-Sum purchase:
If a company purchases a group of assets collectively and a lump sum amount is paid for such purchase, then it is referred to as basket purchase. The accounting term for this type of acquisition is the lump-sum purchase.
Ascertain the allocation of property costs to the three assets purchased as follows:
Assets | Fair Market Value (in $) | Percent of total= | Allocation of the purchase price based on the percentage of total |
Land | 175,000 | 163,000 | |
Land Improvements | 70,000 | 65,200 | |
Building | 105,000 | 97,800 | |
Total | $350,000 | $326,000 |
Table (1)
Hence, the allocation of property costs to the three assets purchased is option b. Land, $163,000; Land Improvements, $65,200; Building, 97,800.
Want to see more full solutions like this?
Chapter 10 Solutions
Principles of Financial Accounting.
- The industrial enterprise "HUANG S.A." purchased a sorting and packaging machine from a foreign company on 1/4/2017 at a cost of €500,000. The useful life of the machine was estimated by the Management at ten (10) years, while the residual value was estimated at zero. For the transportation of the machine from abroad to the company's factory, the amount of €20,000 was paid on 15/4/2017. As the insurance coverage of the machine during transportation was the responsibility of the selling company, HUANG S.A. proceeded to insure the machine from 16/4/2017 to 15/4/2018, paying the amount of €1,200. The delivery took place on 15/4/2017. As adequate ventilation of the multifunction device is essential for its proper operation, the company fitted an air duct on the multifunction device. The cost of the air duct amounted to €2,000 and was paid on 20/4/2017. On 25/4/2017, an external electrician was paid €5,000 for the electrical connection of the device. The company also paid €5,000 to an…arrow_forwardI need answer typing clear urjent no chatgpt used pls i will give 5 Upvotes.only typing .arrow_forwardCash flow cyclearrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning