Question

Schwartzkopf Co. purchased for $2,088,000 property that included both land and a building to be used in operations. The seller's book value was $294,000 for the land and $986,000 for the building. By appraisal, the fair value was estimated to be $826,355 for the land and $2,023,145 for the building. At what amount should Schwartzkopf report the land and the building at the end of the year?

Answer 1

Cost allocated to land=$605,520

Cost allocated to building=$1,482,480

Step-by-step explanation:

Calculation for the amount that Schwartzkopf should report the land and the building at the end of the year

A. Calculation for Cost allocated to land

Using this formula

Cost allocated to land=Fair value of land/

Fair value of building and land×Cost

Let plug in the formula

Cost allocated to land=$826,355/($2,023,145+$826,355)×$2,088,000

Cost allocated to land=$826,355/$2,849,500×$2,088,000

Cost allocated to land=0.29×$2,088,000

Cost allocated to land=$605,520

Therefore the Cost allocated to land will be $605,520

B. Calculation for Cost allocated to building

Using this formula

Cost allocated to building=Fair value of land/

Fair value of building and land×Cost

Let plug in the formula

Cost allocated to building=$2,023,145/$2,023,145+$826,355)×$2,088,000

Cost allocated to building=$2,023,145/$2,849,500×$2,088,000

Cost allocated to building=0.71×$2,088,000

Cost allocated to building=$1,482,480

Therefore Cost allocated to building will be $1,482,480