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: $\begin{array}{lll}
&\text { Current } & \text { Vendor's } \
&\text { Assessed } & \text { Original } \
&\text { Valuation } & \text { Cost }\
\text { Land } & \$ 100,000 & \$ 70,000 \
\text { Warehouse } & 80,000 & 80,000 \
\text { Office building } & \underline{220,000} & \underline{150,000} \
&\$400,000&\$300,000
\end{array}$
What are the appropriate amounts that Rabie should record for the land, warehouse, and office building, respectively?

Question

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: $\begin{array}{lll}
&\text { Current } & \text { Vendor's } \
&\text { Assessed } & \text { Original } \
&\text { Valuation } & \text { Cost }\
\text { Land } & \$ 100,000 & \$ 70,000 \
\text { Warehouse } & 80,000 & 80,000 \
\text { Office building } & \underline{220,000} & \underline{150,000} \
&\$400,000&\$300,000
\end{array}$
 What are the appropriate amounts that Rabie should record for the land, warehouse, and office building, respectively?

Quizplus · Accepted Answer

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.

On May 7, 2010, Rabie Corporation Purchased for $450, 000