Question

Smart Touch Learning paid a combined purchase price of $ 300000 for land and a building. An independent appraiser values the land at $ 50000 and the building at $ 200000. What should Smart Touch Learning record for the cost of the land and the​ building?

Answer 1

Smart Touch Learning should allocate the total purchase cost of $300,000 between the land and building based on their appraised values, resulting in $60,000 for the land, and $240,000 for the building.

Step-by-step explanation:

When Smart Touch Learning purchased both land and a building for a combined price of $300,000, they need to allocate the total cost between the two types of assets based on their individual appraised values. In this scenario, an independent appraiser assessed the value of the land at $50,000 and the building at $200,000. To find the cost allocation, we calculate the proportion of the total value represented by each asset.

First, we add the appraised values to get the total value: $50,000 (land) + $200,000 (building) = $250,000 (total appraised value). Next, we calculate the percentage of the total value for each asset: land = $50,000 / $250,000 = 20%, and building = $200,000 / $250,000 = 80%.

Then, we apply these percentages to the purchase price paid by Smart Touch Learning. For the land: $300,000 * 20% = $60,000, and for the building: $300,000 * 80% = $240,000. Hence, Smart Touch Learning should record $60,000 as the cost of the land and $240,000 as the cost of the building.