Suppose a company purchased land and a building for $20,000,000 cash. The appraised value of the building was $17,000,000, and the land was appraised at $8,000,000. * Note: for calculations, round to nearest whole percentage before calculating the allocation of the purchase price (i. e., if percentage calculates out to be 0.249, then round up to 25%) * What dollar amount of the purchase price will be allocated to the Land account?

Question

Business

Gaven Ayala

16 January, 17:45

Suppose a company purchased land and a building for $20,000,000 cash. The appraised value of the building was $17,000,000, and the land was appraised at $8,000,000. * Note: for calculations, round to nearest whole percentage before calculating the allocation of the purchase price (i. e., if percentage calculates out to be 0.249, then round up to 25%) * What dollar amount of the purchase price will be allocated to the Land account?

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Jeremiah Hughes · Answer 1

The amount of the purchase price will be allocated to the Land account is $6,400,000

Explanation:

For computing the purchase price of the land, first we have to compute the weightage of both the fixed assets which are shown below:

For building = Appraised value of building : total value of fixed assets '

= $17,000,000 : $25,000,000

= 68%

where,

Total value of fixed assets = Appraised value of the building + appraised value of the land

= $17,000,000 + $8,000,000

= $25,000,000

For land = Appraised value of land : total value of fixed assets '

= $8,000,000 : $25,000,000

= 32%

So, the purchase price of the land equal to

= Total purchase price of fixed assets * weightage of land

= $20,000,000 * 32%

= $6,400,000