Question

Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $1,800,000. According to independent appraisals, the fair values were $855,000 (building A) and $475,000 (building B) for the buildings and $570,000 for the land. Required: Determine the initial valuation of the buildings and the land.

Answer 1

Land = $540,000: Building A = $810,000: Building B = $450,000

Step-by-step explanation:

Assets Fair values Weight Valuation

Land $570,000 30% $540,000

Building A $855,000 45% $810,000

Building B $475,000 25% $450,000

Total $1,900,000 $1,800,000

Note: Valuation = Weight*Lump - Sum purchase amount

Weight = Fair values / Total fair values