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. What is the cost that should be allocated to the land?
A)$80,000
B)$70,000
C)$100,000
D)$107,000

Question

Quizplus · Accepted Answer

The cost allocation is based on the relative market values. The total market value is $1,000,000 ($100,000 + $740,000 + $160,000). The land's proportion is $100,000/$1,000,000 = 10%. Therefore, 10% of the total purchase price of $800,000 is $80,000.

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