Asked by Sewar Rawabdeh on Apr 28, 2024
Verified
On May 7, 2010, Rabie Corporation purchased for $450, 000 a tract of land on which was located a warehouse and an office building.The following data were collected concerning the property: Current Vendor’s Assessed Original Valuation Cost Land $100,000$70,000 Warehouse 80,00080,000 Office building 220,000‾150,000‾$400,000$300,000\begin{array}{lll}&\text { Current } & \text { Vendor's } \\&\text { Assessed } & \text { Original } \\&\text { Valuation } & \text { Cost }\\\text { Land } & \$ 100,000 & \$ 70,000 \\\text { Warehouse } & 80,000 & 80,000 \\\text { Office building } & \underline{220,000} & \underline{150,000} \\&\$400,000&\$300,000\end{array} Land Warehouse Office building Current Assessed Valuation $100,00080,000220,000$400,000 Vendor’s Original Cost $70,00080,000150,000$300,000
What are the appropriate amounts that Rabie should record for the land, warehouse, and office building, respectively?
A) land, $ 70, 000; warehouse, $80, 000; office building, $150, 000
B) land, $100, 000; warehouse, $80, 000; office building, $220, 000
C) land, $100, 000; warehouse, $80, 000; office building, $270, 000
D) land, $112, 500; warehouse, $90, 000; office building, $247, 500
Assessed Valuation
The valuation placed on property by a public tax assessor for purposes of taxation.
Current Data
Refers to the most recent data available for analysis or decision-making processes.
- Ascertain the allocation of costs for bulk acquisitions.
Verified Answer
AR
Alyssa RobertsMay 03, 2024
Final Answer :
D
Explanation :
To determine the appropriate amounts to record for each asset, we need to use the cost allocation method. This method involves assigning the cost of the entire property to the land, warehouse, and office building based on their relative fair market values.
To do this, we need to use the information given in the problem:
- The fair market value of the land is $150,000
- The fair market value of the warehouse is 40% of the total property value
- The fair market value of the office building is 60% of the total property value
First, we need to calculate the total fair market value of the property:
$150,000 / 0.4 = $375,000
$375,000 / 0.6 = $625,000
Therefore, the total fair market value of the property is $625,000.
Next, we can use the fair market value percentages to determine the appropriate amounts to record for each asset:
Land: $150,000 x 0.1125 = $16,875
Warehouse: $625,000 x 0.4 = $250,000 x 0.36 = $90,000
Office building: $625,000 x 0.6 = $375,000 x 0.675 = $253,125
Adding these amounts together, we get a total of $360,000. However, we paid $450,000 for the property. The remaining $90,000 is recorded as land improvements or other assets.
Therefore, the appropriate amounts that Rabie should record for the land, warehouse, and office building are:
- Land: $16,875
- Warehouse: $90,000
- Office building: $253,125
Thus, the best choice is D, as it matches these amounts.
To do this, we need to use the information given in the problem:
- The fair market value of the land is $150,000
- The fair market value of the warehouse is 40% of the total property value
- The fair market value of the office building is 60% of the total property value
First, we need to calculate the total fair market value of the property:
$150,000 / 0.4 = $375,000
$375,000 / 0.6 = $625,000
Therefore, the total fair market value of the property is $625,000.
Next, we can use the fair market value percentages to determine the appropriate amounts to record for each asset:
Land: $150,000 x 0.1125 = $16,875
Warehouse: $625,000 x 0.4 = $250,000 x 0.36 = $90,000
Office building: $625,000 x 0.6 = $375,000 x 0.675 = $253,125
Adding these amounts together, we get a total of $360,000. However, we paid $450,000 for the property. The remaining $90,000 is recorded as land improvements or other assets.
Therefore, the appropriate amounts that Rabie should record for the land, warehouse, and office building are:
- Land: $16,875
- Warehouse: $90,000
- Office building: $253,125
Thus, the best choice is D, as it matches these amounts.
Learning Objectives
- Ascertain the allocation of costs for bulk acquisitions.
Related questions
How Is the Cost Computed for Individual Assets Purchased as ...
Riverboat Adventures Pays $310,000 Plus $15,000 in Closing Costs to ...
The Purchase of a Property That Included Land,building,and Related Improvements ...
The Disclosure Rules Pertaining to GAAP Accounting for Business Combinations ...
If Sun Company Acquired Star,Inc ...