Question

A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $35,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:________.a) $0.b) $30,435.c) $35,000.d) $46,087.e) $100,000.

Answer 1

Answer:

The correct option is b) $30,435.

Explanation:

In accounting, property acquisition cost of a group of assets is allocated based on the ratio of the appraisal value of each asset to the sum of the appraisal values of all the assets concerned.

The following are given in the question:

Property acquisition cost = $100,000

Building appraisal value = $62,000

Land appraisal value = $35,000

Parking lot appraisal value = $18,000

Therefore, we have:

Total appraisal value = Building appraisal value + Land appraisal value + Parking lot appraisal value = $62,000 + $35,000 + $18,000 = $115,000

Cost allocated to land = (Land appraisal value / Total appraisal value) * Property acquisition cost  = ($35,000 / $115,000) * $100,000 = 0.304347826086957 * $100,000 = $30,435

Therefore, Land should be recorded in the accounting records with an allocated cost of $30,435.