Chico Company paid $520,000 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, $120,000; Building, $420,000; and Land, $90,000. Based on this information, what is the cost that should be allocated to the office furniture? (Round intermediate percentage values to a whole percentage.)
A)$98,800
B)$120,000
C)$187,852
D)$57,700

Question

Quizplus · Accepted Answer

To determine the cost that should be allocated to the office furniture, we first need to determine the total percentage of the market values of all the assets.

Total market values = $120,000 + $420,000 + $90,000 = $630,000

Percentage of market value for office furniture = ($120,000 / $630,000) x 100% ≈ 19%

Next, we need to apply this percentage to the total cost of the basket purchase:

Cost allocated to office furniture = 19% x $520,000 ≈ $98,800

Therefore, choice A is the correct answer.

Chico Company Paid $520,000 for a Basket Purchase That Included