Question

Blue Company acquired a manufacturing facility on four acres of land for a lump-sum price of $8,400,000. The building included used but functional equipment. Blue Company intended to use the manufacturing facility in its future operatioins. According to independent appraisals, the fair values were $3,480,000, $3,480,000, and $4,640,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be: Building Land Equipment a.$3,480,000 $3,480,000 $4,640,000 b.$3,480,000 $3,480,000 $580,000 c.$2,520,000 $2,520,000 $3,360,000 d.None of these answer choices are correct. Multiple Choice Option C Option B Option A Option D

Answer 1

Answer: c.$2,520,000 $2,520,000 $3,360,000

Explanation:

Sum the fair values from the independent appraisals up;

= 3,480,000 + 3,480,000 + 4,640,000

= $11,600,000

The proportion of the individual fair value to the total fair value can then be used to calculate the originals from the lump sum;

Building

= 3,480,000/11,600,000 * 8,400,000

= $‭2,520,000‬

Land

= 3,480,000/11,600,000 * 8,400,000

= $‭2,520,000‬

Equipment

= 4,640,000/11,600,000 * 8,400,000

= $‭3,360,000‬