Question

Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,500,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,800,000, $3,600,000, and $3,600,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be:

Answer 1

Answer:

$3,400,000; $2,550,000; $2,550,000

Explanation:

Total fair value:

= Building + Land + Equipment

= $4,800,000 + $3,600,000 + $3,600,000

= $12,000,000

Initial value of building:

= Total cost of acquisition × (Fair value of building ÷ Total fair value)

= $8,500,000 × ($4,800,000 ÷ $12,000,000)

= $8,500,000 × 0.4

= $3,400,000

Initial value of land:

= Total cost of acquisition × (Fair value of land ÷ Total fair value)

= $8,500,000 × ($3,600,000 ÷ $12,000,000)

= $8,500,000 × 0.3

= $2,550,000

Initial value of Equipment:

= Total cost of acquisition × (Fair value of Equipment ÷ Total fair value)

= $8,500,000 × ($3,600,000 ÷ $12,000,000)

= $8,500,000 × 0.3

= $2,550,000