Question

AFM Holdings Co. purchased 15 acres of land with an office building and warehouse on it...

AFM Holdings Co. purchased 15 acres of land with an office building and warehouse on it for $2,000,000. The assets were appraised at: land $1,000,000, building $600,000, and warehouse $900,000. The assets were carried on the seller's books at: land $800,000, building $500,000, and warehouse $700,000. At what cost should the purchasing company record each of the assets?

Land,    Building, Warehouse:

a. $1,000,000, $600,000, $900,000

b. $800,000, $480,000, $720,000

c. $800,000,   $500,000, $700,000

d. $1,000,000, $500,000, $500,000

Business   Accounting   
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Answer #1

· Correct Answer = Option ‘B’
Land = $ 800000
Building = $ 480000
Warehouse = $ 720000

Allocation of total cost

Appraised Value

Percent of Total Appraised Value

x

Total cost of Acquisition

Apportioned Cost

Land

$        1,000,000.00

40.00%

%

x

$ 2,000,000.00

$     800,000.00

Building

$           600,000.00

24.00%

%

x

$ 2,000,000.00

$     480,000.00

Warehouse

$           900,000.00

36.00%

%

x

$ 2,000,000.00

$     720,000.00

Total

$        2,500,000.00

100.00%

%

$ 2,000,000.00

$   2,000,000.00

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