Question

a company acquired the following assets associated with a manufacturing facility for a lump-sum price of $10,500,000. according to independent appraisals, the fair values were $6,875,000, $1,375,000, $4,125,000, and $1,375,000 for the building, patent, land and equipment, respectively. the initial value of the patent would be:

Answer 1

The initial value of the patent is determined by allocating the lump-sum purchase price based on the relative fair values of all acquired assets. It is 10% of the total purchase price, which equals $1,050,000.

Step-by-step explanation:

The initial value of the patent when a company acquires multiple assets for a lump-sum price is determined by allocating the total purchase price based on the relative fair values of the assets.

To find the initial value of the patent, we first need to calculate the total appraised value of all the assets, which is the sum of the individual fair values: $6,875,000 (building) + $1,375,000 (patent) + $4,125,000 (land) + $1,375,000 (equipment) = $13,750,000.

The fraction of the total purchase price attributed to the patent is calculated based on its fair share of the total fair value: $1,375,000 (patent's fair value) / $13,750,000 (total fair values) = 0.1 or 10%. Therefore, the initial value of the patent is 10% of the lump-sum purchase price: 0.1 * $10,500,000 = $1,050,000.