Question

Laramie co. paid $2,300,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: land, $696,000, building, $864,000, and office furniture, $840,000. Based on this information the cost that would be allocated to the land is:

a) $812,000
b) $696,000
c) $988,000
d) $612,000

Answer 1

The cost allocated to the land would be $696,000, which is directly based on the land's appraised value and is the closest match to the calculated allocation using the total cost and individual estimated market values.

Step-by-step explanation:

When Laramie Co. paid $2,300,000 for a purchase that included land, building, and office furniture, and considering the appraiser's estimates of the market values for each (land: $696,000, building: $864,000, and office furniture: $840,000), we need to allocate the total cost proportionally based on the individual estimated market values.

Step 1: Calculate Total Estimated Market Value

Sum of the appraiser's provided estimated market values:
Land: $696,000
Building: $864,000
Office Furniture: $840,000
Total Estimated Market Value: $696,000 + $864,000 + $840,000 = $2,400,000

Step 2: Calculate Allocation Percentage for Land

Land allocation percentage: $696,000 / $2,400,000

Step 3: Calculate Cost Allocated to Land

Cost allocated to land: $2,300,000 * (Land allocation percentage)

Performing the calculation provides the cost that would be allocated to the land as $2,300,000 * ($696,000 / $2,400,000) = $667,000. However, since this value is not an option provided and could have been due to a typo, we would select the closest available answer choice which is $696,000 (option b), as it appears to be a direct match with the appraised value of the land.