The Jacob Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $500,000. At the time of acquisition, Jacob paid $20,000 to have the assets appraised. The appraisal disclosed the following values:
Land $\quad $ $\quad $$100,000
Buildings $\quad $200,000
Equipment $\quad $300,000
What costs should be assigned to the buildings?

Question

The Jacob Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $500,000. At the time of acquisition, Jacob paid $20,000 to have the assets appraised. The appraisal disclosed the following values:
Land  $\quad $ $\quad $$100,000
Buildings  $\quad $200,000
Equipment  $\quad $300,000
What costs should be assigned to the buildings?

Quizplus · Accepted Answer

The cost assigned to the buildings is determined by the relative fair market value method. The total appraised value is $600,000 ($100,000 for land + $200,000 for buildings + $300,000 for equipment). The buildings' appraised value ($200,000) represents 1/3 of the total appraised value. The purchase price plus appraisal cost is $520,000 ($500,000 + $20,000). Therefore, the buildings' cost is 1/3 of $520,000, which is $173,333.

The Jacob Corporation Acquired Land, Buildings, and Equipment from a Bankrupt