Question

Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $1,200,000. According to independent appraisals, the fair values were $585,000 (building A) and $325,000 (building B) for the buildings and $390,000 for the land. Required: Determine the initial valuation of the buildings and the land.

Answer 1

Answer:

Initial valuation of the building A=$540000

Initial valuation of the building B=$300000

Initial valuation of the land=$360000

Explanation:

First,we will calculate the total fair value of all assets:

Total fair value of assets=Fair value of building A+Fair value of building B+Fair value of land

Total fair value of assets=$585,000+$325,000+$390,000

Total fair value of assets=$1,300,000

Initial valuation of the building A= $\frac{Fair\ value\ of\ building\ A}{Total\ Fair\ value} *lump-sum$

$Initial\ valuation\ of\ the\ building\ A=\frac{\ 585,000}{\ 1,300,000}*\ 1,200,000\\Initial\ valuation\ of\ the\ building\ A=\ 540000$

For building B:

$Initial\ valuation\ of\ the\ building\ B=\frac{\ 325,000}{\ 1,300,000}*\ 1,200,000\\Initial\ valuation\ of\ the\ building\ B=\ 300,000$

For Land:

$Initial\ valuation\ of\ the\ building\ land=\frac{\ 390,000}{\ 1,300,000}*\ 1,200,000\\Initial\ valuation\ of\ the\ building\ land=\ 360000$

Check of answer;

Sum of all initial Values= Lump-Sum

$540000+$300000+$360000=$1,200,000

$1,200,000=$1,200,000