Land and a warehouse were acquired for $890,000.What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse?

Question

Quizplus · Accepted Answer

The cost of the land and warehouse should be recorded based on their fair market values, as determined by the appraisal. The land’s value is $400,000, and the warehouse’s value is $700,000. Therefore, the cost recorded for the land should be $323,960 ($890,000 x $400,000 / ($400,000 + $700,000)) and the cost recorded for the warehouse should be $566,040 ($890,000 x $700,000 / ($400,000 + $700,000)).

Land and a Warehouse Were Acquired for $890,000