Question

Carver incorporated purchased a building and the land on which the building is situated for a total cost of $913,000 cash. the land was appraised at $199,490 and the building at $850,460.

Answer 1

Carver Incorporated needs to allocate the purchase price between land and building based on their appraised values; approximately $173,307 for the land and $739,693 for the building.

Step-by-step explanation:

Allocating the Purchase Price Between Land and Building

When Carver Incorporated purchased a building and the land for $913,000, the cost must be allocated between the land and the building based on their appraised values. The land was appraised at $199,490 and the building at $850,460. The total appraised value is $1,049,950. The cost allocation is calculated by taking the appraised value of each (land or building) and dividing it by the total appraised amount, then multiplying the result by the total cost paid.

1. 
   
3. Calculate the percentage of total value for land: $199,490 / $1,049,950 = 0.1899 (or 18.99%)
4. 
   
6. Calculate the percentage of total value for the building: $850,460 / $1,049,950 = 0.8101 (or 81.01%)
7. 
   
9. Allocate the cost to the land: $913,000 * 18.99% = $173,307
10. 
    
12. Allocate the cost to the building: $913,000 * 81.01% = $739,693

This way, the cost allocated to the land would be approximately $173,307, and the cost allocated to the building would be approximately $739,693.