Abbott Industries bought a property with land and a building on it for $20,000,000.An independent appraisal of the land put the value of the land between $5,000,000 and $8,000,000.If Abbott's financial reporting objective is to report maximum performance how should the cost be allocated to the two assets? $\begin{array}{ll}
&\text {Land }&\text {Building }\
\hline\text { A) } &\$ 5,000,000 & \$ 15,000,000 \
\text { B) } &\$ 6,500,000 & \$ 13,500,000 \
\text { C) } &\$ 8,000,000 & \$ 12,000,000 \
\text { D) }& \$ 10,000,000 & \$ 10,000,000
\end{array}$

Question

Quizplus · Accepted Answer

Allocating a higher value to the land ($8,000,000) and a lower value to the building ($12,000,000) would result in lower depreciation expenses for the building, as land is not depreciated. This approach maximizes reported earnings.

Abbott Industries Bought a Property with Land and a Building