DC bought Assets A,B,and C for a total cash price of $324,000.The assets were reflected in the accounts of the seller as follows: A,$75,000,B,$60,000,and C,$65,000.The property tax assessments were: A,$15,000,B,$4,000,and C,$6,000.Because the tax assessments were made by untrained people,they bear little resemblance to actual market prices.An independent and competent appraisal showed the following: A,$105,000,B,$70,000,and C,$95,000.DC should record the costs of the assets as follows: $$\begin{array} { | l | l | l | l | }
\hline & \text { Asset A } & \text { Asset B } & \text { Asset C } \
\hline 1 & \$ 108,000 & \$ 108,000 & \$ 108,000 \
\hline 2 & \$ 126,000 & 84,000 & 114,000 \
\hline 3 & \$ 105,000 & 70,000 & 95,000 \
\hline 4 & \$ 75,000 & 60,000 & 65,000 \
\hline
\end{array}$$

Question

DC bought Assets A,B,and C for a total cash price of $324,000.The assets were reflected in the accounts of the seller as follows: A,$75,000,B,$60,000,and C,$65,000.The property tax assessments were: A,$15,000,B,$4,000,and C,$6,000.Because the tax assessments were made by untrained people,they bear little resemblance to actual market prices.An independent and competent appraisal showed the following: A,$105,000,B,$70,000,and C,$95,000.DC should record the costs of the assets as follows: $$\begin{array} { | l | l | l | l | } 
\hline & \text { Asset A } & \text { Asset B } & \text { Asset C } \
\hline 1 & \$ 108,000 & \$ 108,000 & \$ 108,000 \
\hline 2 & \$ 126,000 & 84,000 & 114,000 \
\hline 3 & \$ 105,000 & 70,000 & 95,000 \
\hline 4 & \$ 75,000 & 60,000 & 65,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The costs should be allocated based on the appraised values. The total appraised value is $270,000 ($105,000 + $70,000 + $95,000). The allocation is: A: $324,000 * ($105,000/$270,000) = $126,000, B: $324,000 * ($70,000/$270,000) = $84,000, C: $324,000 * ($95,000/$270,000) = $114,000.

DC Bought Assets A,B,and C for a Total Cash Price