Laramie Company paid $800,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $100,000, Building, $740,000, and Office Furniture, $160,000. Based on this information the cost that would be allocated to the land is:

Question

Quizplus · Accepted Answer

The cost allocated to the land is calculated using the relative fair market value method. The total appraised value is $1,000,000 ($100,000 for land + $740,000 for building + $160,000 for office furniture). The land's proportion is $100,000 / $1,000,000 = 10%. Therefore, 10% of the purchase price ($800,000) is allocated to the land, resulting in $80,000.

Laramie Company Paid $800,000 for a Purchase That Included Land