Question

Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $1,200,000. According to independent appraisals, the fair values were $585,000 (building A) and $325,000 (building B) for the buildings and $390,000 for the land. Required: Determine the initial valuation of the buildings and the land.

Answer 1

Initial valuation of the building A=$540000

Initial valuation of the building B=$300000

Initial valuation of the land=$360000

Step-by-step explanation:

First,we will calculate the total fair value of all assets:

Total fair value of assets=Fair value of building A+Fair value of building B+Fair value of land

Total fair value of assets=$585,000+$325,000+$390,000

Total fair value of assets=$1,300,000

Initial valuation of the building A=
`(Fair\ value\ of\ building\ A)/(Total\ Fair\ value) *lump-sum`

`Initial\ valuation\ of\ the\ building\ A=(\$585,000)/(\$ 1,300,000)*\$1,200,000\\Initial\ valuation\ of\ the\ building\ A=\$540000`

For building B:

`Initial\ valuation\ of\ the\ building\ B=(\$325,000)/(\$ 1,300,000)*\$1,200,000\\Initial\ valuation\ of\ the\ building\ B=\$300,000`

For Land:

`Initial\ valuation\ of\ the\ building\ land=(\$390,000)/(\$ 1,300,000)*\$1,200,000\\Initial\ valuation\ of\ the\ building\ land=\$360000`

Check of answer;

Sum of all initial Values= Lump-Sum

$540000+$300000+$360000=$1,200,000

$1,200,000=$1,200,000