Question

Riverboat Adventures pays $120,000 plus $20,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $22,100, a building appraised at $66,300, and paddle boats appraised at $81,600. Compute the cost that should be allocated to the building.

Answer 1

$54,600

Step-by-step explanation:

The computation of the cost that should be allocated to the building is shown below

Total purchase cost is

= $120,000 + $20,000

= $140,000

Total appraisal value is

= $22,100 + $66,300 + $81,600

= $170,000

Now cost allocated to building is

= Purchase cost × building appraisal value ÷ Total appraisal value

= $140,000 × $66,300 ÷ $170,000

= $54,600

We simply applied the above formula