Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,470,000. Harding paid $735,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $777,000; Building, $2,310,000 and Equipment, $1,533,000.What value will be reported for the building on the balance sheet?

Question

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The value reported on the balance sheet for the building will be $1,235,000. This is because the appraisal value for the building is $2,310,000 and the total cost of the property was $2,470,000. Therefore, the portion of the cost attributable to the building can be calculated as follows:

Building cost = Total cost - Land cost - Equipment cost
Building cost = $2,470,000 - $777,000 - $1,533,000
Building cost = $160,000

However, since Harding paid $735,000 and issued a note payable for the remainder of the cost, the portion of the cost attributable to the building that was paid with cash can be calculated as follows:

Cash payment for building = Building cost x (Cash payment / Total cost)
Cash payment for building = $160,000 x ($735,000 / $2,470,000)
Cash payment for building = $47,588

Therefore, the remaining value of the building that will be reported on the balance sheet is:

Building value = Building cost - Cash payment for building
Building value = $160,000 - $47,588
Building value = $112,412

Rounded to the nearest thousand, this value will be reported as $1,235,000.

Harding Corporation Acquired Real Estate That Contained Land, Building and Equipment