Question

Riverboat Adventures pays $250,000 plus $10,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $54,000, a building appraised at $110,700, and paddleboats appraised at $105,300. Compute the cost that should be allocated to the building.a. $102,500.b. $106,600.c. $110,700.d. $149,773.e. $67,527

Answer 1

b. $106,600.

Step-by-step explanation:

The computation of the allocation amount of building is shown below:

= Paying cost + closing cost × (appraisal value of building ÷ total appraisal value)

= $250,000 + $10,000 × ($110,700 ÷ $270,000)

= $260,000 × ($110,700 ÷ $270,000)

= $106,600

The total appraisal value would be

= Appraisal value of building + appraisal value of land + appraisal value of paddle boats

= 110,700 + $54,000 + $105,300

= $270,000