Question

A company purchased land, a building, and equipment for one price of $800,000. The estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would the company record the land?

Answer 1

Answer:

$80,000

Step-by-step explanation:

Given:

Total purchase amount = $800,000

Fair values for:

Land = $100,000

Building = $700,000

Equipment = $200,000

Total fair value of the purchase = $100,000  + $700,000  + $200,000

=  $1,000,000

Allocation Percentage Amount of Basket Purchase for land

= ( Fair value ÷ Total fair value of the purchase ) × 100%

= ( $100,000 ÷ $1,000,000 ) × 100%

= 10%

Hence,

Amount at which the land would be recorded

= Allocation Percentage × Total purchase amount

= 10% × $800,000

= $80,000