Final answer:
To calculate the cost allocated to the building, we first determined the total appraised value of the property and the percentage of that value attributable to the building. We then applied this percentage to the total cost paid by Riverboat Adventures. The cost allocated to the building is $91,560.
Step-by-step explanation:
Riverboat Adventures paid $210,000 plus $8,000 in closing costs, totaling $218,000, for real estate consisting of land, a building, and land improvements.
To compute the cost to be allocated to the building, we will use the total cost paid for the property and distribute it based on the appraised values of each part of the real estate.
First, let's calculate the total appraised value:
- Land appraised at $32,500
- Building appraised at $105,000
- Land improvements appraised at $112,500
Total appraised value = $32,500 (land) + $105,000 (building) + $112,500 (land improvements) = $250,000
Next, we'll find out what percentage of the total appraised value is the building:
Percentage for building = ($105,000 / $250,000) x 100 = 42%
Now, we'll apply this percentage to the total cost paid to find out the cost allocated to the building:
Cost allocated to building = 42% of $218,000 = $91,560
Therefore, $91,560 should be allocated to the building.