Question

A company buys a parcel of land on which are erected two buildings. The first building is a 100,000 square-foot warehouse and the second building is a 25,000 square-foot garage and maintenance building. The respective fair market values for the land, the warehouse, and the garage are $125,000, $200,000, and $75,000. The company paid $210,000 for all three assets. What amounts should be allocated to the land and the garage? Round your answers to the nearest whole number.

Answer 1

Answer:

Land, $65,625 and Garage, $39,375

Explanation:

The allocation would be done using the fair market values as basis. Fair market value is more appropriate as a basis instead of using the sizes of the building and the garage as basis.

Total fair market values = $125,000 + $200,000 + $75,000 = $400,000

Total amount paid for all assets = $210,000

Amount allocated to each asset = $\frac{asset's fair market value}{total market value} *total amount paid for all assets$

Amount allocated to land = $\frac{ 125,000}{ 400,000} * 210,000$

= $65,625

Amount allocated to warehouse = $\frac{ 200,000}{ 400,000} * 210,000$

= $105,000

Amount allocated to garage = $\frac{ 75,000}{ 400,000} * 210,000$

= $39,375