Industrial Metals purchases land, building, and equipment together for $1.2 million. The estimated fair values of the land, buildings, and equipment are $500,000, $800,000, and $200,000, respectively. What amount should be recorded in the separate account for the land?

Question

Business

Cecilia Luna

16 May, 02:14

Industrial Metals purchases land, building, and equipment together for $1.2 million. The estimated fair values of the land, buildings, and equipment are $500,000, $800,000, and $200,000, respectively. What amount should be recorded in the separate account for the land?

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Answers (1)

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Jamya Hobbs · Answer 1

The amount that should be recorded in the separate account for the land=$400,000

Explanation:

Step 1: Determine total fair value

The expression for the total fair value is;

Total fair value=land value+building value+equipment value

where;

land value=$500,00

building value=$800,000

equipment value=$200,000

replacing;

Total fair value = (500,000+800,000+200,000) = $1,500,000

Total fair value=$1,500,000

Step 2: Determine proportion of the total fair value that is land

land proportion=land value/total fair value

where;

land value=$500,000

total market value=$1,500,000

replacing;

land proportion=500,000/1,500,000=1/3

Step 3: Determine cost assigned to the land

Cost assigned to the land=land proportion*lump sum

where;

land proportion=1/3

lump sum=$1,200,000

replacing;

Cost assigned to the land = (1/3) * 1,200,000=400,000

Cost assigned to the land=$400,000

The amount that should be recorded in the separate account for the land=$400,000