Question

Riverboat Adventures pays $220,000 plus $10,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $40,500, a building appraised at $110,700, and paddleboats appraised at $118,800. Compute the cost that should be allocated to the building.

Answer 1

Answer: $94,300

Step-by-step explanation:

To calculate the cost of the Building we would have to apportion it's cost based on the the total Appraisal amount.

Now the Real Estate purchased includes land appraised at $40,500, a building appraised at $110,700, and paddleboats appraised at $118,800.

Adding these all up we get,

= 40,500 + 110,700 + 118,800

= $270,000

This is the total appraised value.

The building however accounts for, 110,700/270,000 of the appraised value so it must account for the same proportion in the purchase price.

Calculating that would be,

= 220,000 + 10,000(closing fees) x (110,700/270,000)

= 230,000(110,700/270,000)

= $94,300

$94,300 should be allocated to the building.