Asked by Muhammad Altaf on Jun 15, 2024
Verified
A company paid $150,000,plus a 7% commission and $5,000 in closing costs for a property.The property included land appraised at $87,500,land improvements appraised at $35,000,and a building appraised at $52,500.What should be the allocation of this property's costs in the company's accounting records?
A) Land $75,000; Land Improvements,$30,000; Building,$45,000.
B) Land $75,000; Land Improvements,$30,800; Building,$46,200.
C) Land $82,750; Land Improvements,$33,100; Building,$49,650.
D) Land $80,250; Land Improvements,$32,100; Building,$48,150.
E) Land $77,500; Land Improvements; $31,000; Building; $46,500.
Appraised Value
Appraised value refers to an evaluation of a property's worth at a particular time based on factors like market location, condition, and improvements.
Allocation
The process of assigning or distributing costs or resources among various accounts or cost objects.
Closing Costs
Closing costs are fees and expenses paid during the closure of a real estate transaction, including attorney fees, commissions, and taxes.
- Understand the principles of proper cost allocation for property acquisition and improvements.
Verified Answer
- Land: 50% of $150,000 = $75,000
- Land Improvements: 20% of $150,000 = $30,000
- Building: 30% of $150,000 = $45,000
Adding in the $5,000 in closing costs, the total cost allocation becomes:
- Land: $82,750 ($75,000 + $7,000 + $750)
- Land Improvements: $33,100 ($30,000 + $2,100)
- Building: $49,650 ($45,000 + $4,000 + $650)
Therefore, the closest choice is C.
Learning Objectives
- Understand the principles of proper cost allocation for property acquisition and improvements.
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