Principles of Financial Accounting.
24th Edition
ISBN: 9781260158601
Author: Wild
Publisher: MCG
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Chapter 10, Problem 1MCQ
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
Expert Solution & Answer
To determine
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.
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Chapter 10 Solutions
Principles of Financial Accounting.
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