Question

Dorsey Co. has expanded its operations by purchasing a parcel of land with a building on it from Bibb Co. for $98,000. The appraised value of the land is $21,000, and the appraised value of the building is $102,000.Assuming that the building is to be used in Dorsey Co. business activity, what cost should be recorded for the land?

Answer 1

$16,731.71

Step-by-step explanation:

The cost of land and building to be recorded in the books will be based on the appraised values of both assets.

This means that the appraised values will be the basis for apportionment of the total cost paid for the asset.

Total appraised value = $21,000 + $102,000 = $123,000

Cost of land to be recorded = $21,000/$123,000 × $98,000

= $16,731.71