Question

Minott Jewelers, Ltd., purchased store fixtures, display cases, and a amaximum security commercial safe for a lump sum price of 14,000 from a bankruptcy competitor. Appraised values were as follows: store fixtures, $6,000: display cases, $9,000: commercial safe, $5, 000.
What cost should be recorded for the commercial safe?

Answer 1

Answer:

the correct answer is $3,500.

Explanation:

According to the scenario, the given data are as follows:

Total purchase = $14,000

Appraised Store fixtures = $6,000

Appraised display cases = $9,000

Appraised Commercial safe = $5,000

So, we can calculate the cost that should be recorded for commercial safe by using following formula:

Cost of commercial safe = Total purchase cost × Percentage allocate for safe

Where, Percentage allocate for safe = Appraised Commercial safe value ÷ Total appraised value

= $5,000 ÷ ( $6,000 + $9,000 + $5,000)

= $5,000 ÷ $20,000

= 25%

So, by putting the value, we get

Cost of commercial safe = $14,000 ÷ 25%

= $3,500.

Hence, the cost that should be recorded for commercial safe is $3,500.