Chico Company paid $950,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture $190,000; Building $740,000, Land $132,000. Based on this information, the amount of cost that would be allocated to the office furniture is closest to: (Round your intermediate percentages to 2 decimal places: ie 0.054231 = 5.42%.)

Question

Quizplus · Accepted Answer

The first step is to determine the total percentage of market value each asset represents. 
Office furniture: $190,000 / ($190,000 + $740,000 + $132,000) = 0.1751 or 17.51%
Building: $740,000 / ($190,000 + $740,000 + $132,000) = 0.6868 or 68.68%
Land: $132,000 / ($190,000 + $740,000 + $132,000) = 0.1381 or 13.81%

Next, allocate the total cost of $950,000 based on these percentages:
Office furniture: 17.51% x $950,000 = $166,045 (rounded to nearest thousand)
Building: 68.68% x $950,000 = $651,860 (rounded to nearest thousand)
Land: 13.81% x $950,000 = $132,095 (rounded to nearest thousand)

The allocated cost for office furniture is closest to $171,000.

Chico Company Paid $950,000 for a Basket Purchase That Included