Question

Humphrey Company purchased a property (including land and building). The company acquired the property in exchange...

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

Business   Accounting   
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Answer #1
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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