Question

Company acquired land and buildings for $1,000,000. The land is appraised at $450,000 and the buildings are appraised at $800,000. The debits to the Land and Buildings accounts will be:

Answer 1

Answer:

Debit Land for $360,000

Debit Buildings for $640,000

Explanation:

The total acquisition cost has to be allocated based on the appraisal value of each of the Land and Buildings.

Therefore, the amount to be debited to the Land and Buildings accounts can be calculated as follows:

Total acquisition cost = $1,000,000

Land appraisal value = $450,000

Buildings appraisal value = $800,000

Total appraisal value = Land appraisal value + Buildings appraisal value = $450,000 + $800,000 = $1,250,000

Amount allocated to Land = (Land appraisal value / Total appraisal value) * Total acquisition cost = ($450,000 / $1,250,000) *  $1,000,000 =  $360,000

Amount allocated to Buildings = (Buildings appraisal value / Total appraisal value) * Total acquisition cost = ($800,000 / $1,250,000) *  $1,000,000 =  $640,000

Therefore, the debits to the Land and Buildings accounts will be the allocated amounts to each as follows:

Debit Land for $360,000

Debit Buildings for $640,000