Question

A company acquired an office building on three acres of land for a lump-sum price of $2,450,000. The building was completely equipped. According to independent appraisals, the fair values were $840,000, $840,000, and $1,120,000 for the building, land, and equipment, respectively. At what amount would the company record the building?

Answer 1

Answer:

$735,000

Explanation:

The fair values of the assets may be used as a basis for determining the amount to be recorded for each of the assets.

This will be in a proportional manner such that the higher the fair value, the higher the actual cost assigned and vice versa to the asset.

Hence the amount to be recorded for the building

= 840,000 / (840,000 + 840,000 + 1,120,000) * $2,450,000

= $735,000