Question

Jamison Company purchased the assets of Booker Company at an auction for $5,600,000. An independent appraisal of the fair value of the assets is listed below:

Land $1,900,000
Building 2,800,000
Equipment 2,100,000
Trucks 3,400,000
Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis on the relative fair values, what amount would be allocated to the building?

Answer 1

To allocate the purchase price on the basis of the relative fair values, we need to determine the total fair value of the assets and calculate the proportion of the building's fair value to the total fair value. The amount allocated to the building can then be calculated by multiplying the purchase price by the building allocation proportion.

Step-by-step explanation:

To allocate the purchase price on the basis of the relative fair values, we need to determine the total fair value of the assets. The total fair value is calculated by summing up the fair values of each asset category:

Land + Building + Equipment + Trucks = Total Fair Value
$1,900,000 + $2,800,000 + $2,100,000 + $3,400,000 = $10,200,000

Now, we can allocate the purchase price to the building by finding the proportion of the building's fair value to the total fair value:

Building Fair Value / Total Fair Value = Building Allocation
$2,800,000 / $10,200,000 = 0.2745

Finally, we can calculate the amount allocated to the building by multiplying the purchase price by the building allocation proportion:

Purchase Price * Building Allocation = Amount Allocated to Building
$5,600,000 * 0.2745 = $1,537,200