Question

A company purchased land, a building, and equipment for one price of $800,000. the estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. at what amount would the company record the land? multiple choice

- $90,000
- $100,000
- $80,000
- $800,000

Answer 1

The correct option is 3. The company should record the land at $80,000, which is calculated by proportionally allocating the total purchase price of $800,000 based on the land's estimated fair value in relation to the total fair values of all assets.

Step-by-step explanation:

The student asks how the company should record the cost of the land. The company purchased land, a building, and equipment together for $800,000, with fair values estimated at $100,000 for the land, $700,000 for the building, and $200,000 for the equipment. To allocate the purchase price, each asset is assigned a portion of the total cost based on its relative fair market value.

The allocation is calculated using the formula:

Allocated Cost = (Individual Asset's Fair Value ÷ Total of All Assets' Fair Values) × Total Purchase Price

For the land:

$100,000 (land's fair value) ÷ $1,000,000 (total of fair values) × $800,000 (total purchase price) = $80,000

Therefore, the company would record the land at a cost of $80,000. This is the correct option to choose among the multiple choices provided.