Question

On April 1, Mooney Corporation purchased for $1,624,500 a tract of land on which a warehouse and office building was located. The following data were collected concerning the property:

​Current Assessed Valuation​Vendor's Original Cost

Land​$600,000​$560,000
Warehouse​400,000​360,000
Office building​ 800,000​ 680,000
​$1,800,000​$1,600,000

What are the appropriate amounts that Mooney should record for the land, warehouse, and office building, respectively?

Answer 1

Mooney Corporation should allocate the total purchase price based on the current assessed valuation of the land, warehouse, and office building. The respective allocated amounts for the land, warehouse, and office building should be $540,833.33, $360,555.56, and $723,111.11.

Step-by-step explanation:

The appropriate amounts that Mooney Corporation should record for the land, warehouse, and office building are based on the purchase price allocation principle. This principle requires the total purchase price to be allocated among the purchased assets based on their relative fair values at the time of acquisition.

To allocate the purchase price, we can use the current assessed valuation as it represents the most recent valuation of the properties. The total current assessed valuation is $1,800,000, and the purchase price is $1,624,500. We need to allocate the purchase price in the same proportion to the land, warehouse, and office building as their respective values in the total $1,800,000 valuation.

The calculated amounts are as follows:

• Land: ($600,000 / $1,800,000) × $1,624,500 = $540,833.33
• Warehouse: ($400,000 / $1,800,000) × $1,624,500 = $360,555.56
• Office Building: ($800,000 / $1,800,000) × $1,624,500 = $723,111.11

Therefore, Mooney Corporation should record the land for $540,833.33, the warehouse for $360,555.56, and the office building for $723,111.11.