Question

On September 12 of Year 1, Rosie Company purchased land, a building, and some equipment for a total price of $450,000. The land, building, and equipment were appraised at $240,000, $180,000, and $80,000, respectively. At what amount should Rosie Company record the BUILDING?

Answer 1

Rosie Company should record the building at $162,000, which is calculated by determining the building's percentage of the total appraised value and multiplying it by the total purchase price.

Step-by-step explanation:

Rosie Company should record the building at the proportionate cost based on the total purchase price and the appraised values. First, we need to find the total appraised value which is the sum of the appraised values for the land, building, and equipment. Then, for each item, we calculate the percentage of the total appraised value it represents. Finally, we multiply the total purchase price by the percentage each item represents to get their recorded value.

The total appraised value is:

$240,000 (land) + $180,000 (building) + $80,000 (equipment) = $500,000

The building's percentage of the total appraised value is:

$180,000 / $500,000 = 36%

The recorded cost of the building is therefore:

$450,000 (total purchase price) × 36% (building's percentage) = $162,000