On December 1, 2016, Xeon Company bought land and an accompanying warehouse from Yen Company for $800,000.The fair market values of the land and the building at the time of purchase were $700,000 and $300,000, respectively.How much of the purchase price should Xeon Company allocate to the land and how much should be allocated to the building?
A) $457,143 and $342,857, respectively.
B) $700,000 and $300,000, respectively.
C) $560,000 and $240,000, respectively.
D) $500,000 and $300,000, respectively

Question

Quizplus · Accepted Answer

The purchase price should be allocated based on the fair market values of the land and building at the time of purchase. The total fair market value is $700,000 (land) + $300,000 (building) = $1,000,000. The land's fair market value represents 70% ($700,000 / $1,000,000) of the total, and the building's fair market value represents 30% ($300,000 / $1,000,000). Therefore, of the $800,000 purchase price, 70% should be allocated to the land ($800,000 * 70% = $560,000) and 30% to the building ($800,000 * 30% = $240,000).

On December 1, 2016, Xeon Company Bought Land and an Accompanying