Humphrey Company purchased a property (including land and building). The company acquired the property in exchange for a 15-year mortgage for $1,800,000. Their insurance company appraised the components as follows:
Land |
$ 400,000 |
Building |
1,400,000 |
Parking lot |
200,000 |
What should be the cost basis for the building?
Select one:
A. $1,244,444
B. $1,400,000
C. $1,200,000
D. $1,260,000
Appraised value | |
Land | $ 400,000 |
Building | $ 1,400,000 |
Parking Lot | $ 200,000 |
Total | $ 2,000,000 |
Cost basis for building = Cost of property acquired * Appraised value of building / Total appraised value = $1,800,000 * $1,400,000 / $2,000,000 | $ 1,260,000 | Option D |
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