AFM Holdings Co.purchased 15 acres of land with an office building and warehouse on it for $2,000,000.The assets were appraised at: land $1,000,000,building $600,000,and warehouse $900,000.The assets were carried on the seller's books at: land $800,000,building $500,000,and warehouse $700,000.At what cost should the purchasing company record each of the assets?
land Building Warehouse

Question

Quizplus · Accepted Answer

The cost of each asset should be based on their respective appraised values, which are land $1,000,000, building $600,000, and warehouse $900,000. However, since the assets were carried on the seller's books at a lower value, the cost should be adjusted to the higher appraised values. Therefore, the cost of land should be $800,000 ($1,000,000 - $200,000), the cost of the building should be $480,000 ($600,000 - $120,000), and the cost of the warehouse should be $720,000 ($900,000 - $180,000). Choice B is the only option that reflects this approach.