Question

Utica Corporation paid $360,000 to purchase land and a building. An appraisal showed that the land is worth $100,000 and the building is worth $300,000. What cost should Utica assign to the land and to the building, respectively?

Answer 1

Answer:

Land        90,000 debit

Building 270,000 debit

   Cash                  360,000 credit

--to record the purchase of land and a building atached to the ground--

Explanation:

To know the values we will calcualte the weights of each concept according to their fair values.

Then, we multiply these weight by the actual amount at which we purchased.

Land           100,000

Building    300,000  

Total           400,000

land weight: 100,000/400,000 = 25%

buidling weight: 300,000 / 400,000 = 75%

land enter the accounting as 25% of 360,000 = 90,000

building will we posted as 75% of 360,000 = 270,000